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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from . . . . . . . . to . . . . . . .
Commission file number 000-23143
_______________
PROGENICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
_______________
Delaware 13-3379479
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
777 Old Saw Mill River Road
Tarrytown, New York 10591
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (914) 789-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0013 par
value per share
(Title of Class)
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 state-
ments incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 24, 1998 (based on the closing price of $20.50 on such
date as reported on the Nasdaq National Market) was approximately $110
million.(1) As of March 24, 1998, 9,002,353 shares of Common Stock, $.0013 par
value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III-Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's Annual Meeting of Stockholders, to be filed not later
than 120 days after the close of the Registrant's fiscal year.
(1) Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers, directors and five percent shareholders of the
Registrant, without conceding that all such persons are "affiliates" of the
Registrant for purposes of the Federal securities laws.
Table of Contents
Page
PART I
Item 1. Business 1
Item 2. Properties 29
Item 3. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 30
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters 31
Item 6. Selected Financial Data 33
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 64
PART III
Item 10. Directors and Executive Officers of the Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners and Management 65
Item 13. Certain Relationships and Related Transactions 65
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 65
i
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
UNCERTAINTIES ASSOCIATED WITH PRODUCT DEVELOPMENT, THE RISK THAT CLINICAL
TRIALS WILL NOT COMMENCE WHEN PLANNED, THE RISKS AND UNCERTAINTIES ASSOCIATED
WITH DEPENDENCE UPON THE ACTIONS OF THE COMPANY'S CORPORATE, ACADEMIC AND OTHER
COLLABORATORS AND OF GOVERNMENT REGULATORY AGENCIES, THE RISK THAT PRODUCTS
THAT APPEARED PROMISING IN EARLY CLINICAL TRIALS DO NOT DEMONSTRATE EFFICACY IN
LARGER-SCALE CLINICAL TRIALS AND THE OTHER RISKS DESCRIBED IN THIS REPORT,
INCLUDING UNDER THE CAPTION "BUSINESS-RISK FACTORS."
Item 1. Business
GENERAL OVERVIEW
Progenics Pharmaceuticals, Inc. ("Progenics" or the "Company") is a
biopharmaceutical company focusing on the development and commercialization of
innovative products for the treatment and prevention of cancer and viral
diseases. The Company applies its immunology expertise to develop
biopharmaceuticals that induce an immune response or that mimic natural
immunity in order to fight cancers, such as malignant melanoma, and viral
diseases, such as human immunodeficiency virus ("HIV") infection. Progenics'
most advanced product candidate, GMK, is a therapeutic vaccine that is
currently undergoing two pivotal Phase III clinical trials for the treatment of
melanoma, a deadly form of skin cancer. Progenics' second vaccine product
candidate, MGV, is being developed for the treatment of various cancers and
commenced Phase I/II clinical trials in September 1996. Based on its
participation in the discoveries of two major receptors for HIV, the Company is
engaged in research and development of therapeutic products designed to block
entry of HIV into human immune system cells. Progenics commenced Phase I/II
clinical trials of one of these product candidates, PRO 542, in September 1997
and plans to initiate Phase I/II clinical trials of another product candidate,
PRO 367, in the first half of 1998. The Company has entered into a
collaboration with Bristol-Myers Squibb Company ("BMS") to develop and
commercialize GMK and MGV. The Company has also entered into a collaboration
with the Roche Group of Basel, Switzerland ("Roche") to discover and develop
novel HIV therapeutics which target the recently identified fusion co-receptors
of the virus.
Cancer Therapeutics
The Company's GMK and MGV cancer therapeutics are based on proprietary
ganglioside conjugate vaccine technology designed to stimulate the immune
system to destroy cancer cells. This technology is exclusively licensed by the
Company from Memorial Sloan-Kettering Cancer Center ("Sloan-Kettering"). GMK
is designed to prevent recurrence of melanoma in patients who are at risk of
relapse after surgery. GMK is composed of a ganglioside antigen which is
abundant in melanoma cells, conjugated to an immunogenic carrier protein and
combined with an adjuvant (an immunological stimulator). In August 1996, the
Company commenced the first of three pivotal, randomized, multicenter Phase III
clinical trials of GMK. This trial is being conducted in the United States by
cooperative cancer research groups supported by the National Cancer Institute
("NCI"). The two additional Phase III clinical trials of GMK will be conducted
in a number of countries outside of the United States. One of these trials
commenced enrollment of patients in June 1997. The other is expected to
commence in the first half of 1998 and will be conducted in Europe by the
European Organization for Research and Treatment of Cancer ("EORTC").
MGV is being developed to treat a wide range of cancers, including
colorectal cancer, lymphoma, small cell lung cancer, sarcoma, gastric cancer,
neuroblastoma and melanoma. MGV incorporates two ganglioside antigens that are
abundant in these and other types of cancer cells. In September 1996, MGV
entered Phase I/II clinical trials at Sloan-Kettering.
In July 1997, the Company and BMS entered into a Joint Development and
Master License Agreement (the "BMS License Agreement") and related agreements
with BMS under which Progenics granted BMS an exclusive worldwide license to
GMK and MGV. BMS made related cash payments to the Company of approximately
$13.3 million and is obligated to make future payments of up to $61.5 million
upon the achievement of specified milestones. In addition, BMS is required to
fund continued clinical development of GMK and MGV and to pay royalties on any
product sales.
HIV Therapeutics
There is a considerable need for the development of new HIV therapeutics
that address the major problems of viral resistance and drug toxicity that are
inherent in currently approved drugs, which target certain enzymes necessary
for viral infection and replication. In contrast, the Company's HIV
therapeutic programs are based on the CD4 receptor and recently discovered co-
receptors, CCR5 and CXCR4, to which binding is necessary for attachment, fusion
and entry of the virus into the cell. Progenics applies its universal
antiviral binding agent ("UnAB") technology to produce antibody-like molecules
designed to neutralize or destroy HIV or HIV-infected cells. This program and
the Company's HIV attachment screening program are based on the CD4 receptor.
The Company's HIV co-receptor/fusion program is based on CCR5 and CXCR4.
Progenics' PRO 542 and PRO 367 product candidates utilize the Company's
proprietary UnAB technology. Progenics is developing PRO 542 to selectively
target HIV and prevent it from infecting healthy cells by binding to the sites
on the virus that are required for entry into the cell. PRO 542 is being
developed as an immunotherapy to treat HIV-positive individuals and has been
shown in vitro to neutralize a wide range of HIV clinical strains. The Company
initiated Phase I/II clinical trials of PRO 542 in September 1997.
Progenics is developing PRO 367 as a therapeutic agent designed to kill
HIV-infected cells. PRO 367 consists of a UnAB molecule linked to a
therapeutic radioisotope and is designed to bind to and destroy HIV-infected
cells by delivering a lethal dose of radiation. The Company plans to begin
Phase I/II clinical trials of PRO 367 in the first half of 1998.
In June 1996, the Company's scientists in collaboration with researchers
at the Aaron Diamond AIDS Research Center ("ADARC") described in an article
published in Nature the discovery of CCR5, a co-receptor for HIV that mediates
fusion of HIV with the cell membrane. Viral fusion is necessary to permit
entry of the virus into the cell. The Company recently entered into a
collaboration with Roche to discover and develop novel HIV therapeutics which
target CCR5 and other fusion co-receptors of the virus. Under the terms of the
collaboration, Roche has received from Progenics an exclusive worldwide license
to the Company's HIV co-receptor technology. Roche is obligated to make up-
front and milestone payments, research funding for up to three years and
royalty payments on the sale of any products commercialized as a result of the
collaboration.
In addition, the Company is using its proprietary HIV attachment assay in
a collaborative research program to identify small-molecule compounds that
inhibit attachment of the virus to the CD4 receptor.
The Human Immune System
The human immune system functions to protect the body from disease by
specifically recognizing and destroying foreign invaders, including viruses and
bacteria. In addition, the immune system is capable of recognizing and
eliminating from the body abnormal cells, such as cancer cells and cells
infected with viruses and bacteria. White blood cells, particularly B and T
lymphocytes, have the ability to recognize antigens made by these infectious
agents and abnormal cells and react to them. For example, B lymphocytes
produce antibodies that recognize specific antigens. Antibodies can bind to
these antigens and neutralize or eliminate infectious agents and cancer cells.
Vaccines are designed to induce the production of antibodies against antigens
on infectious agents and abnormal cells and thereby protect the body from
illness. Although vaccines have historically been used prophylactically to
prevent the contraction of an infectious disease, more recently vaccines are
also being developed as therapeutics to fight ongoing diseases. In addition,
genetic engineering techniques have enabled the production of antibodies or
antibody-like molecules in the laboratory. These genetically designed antibody
molecules are intended to function by mimicking the body's own immune response
in situations where the immune response has been suppressed or otherwise
compromised.
2
Product Development
The Company applies its expertise in immunology to the development of
therapeutic biopharmaceuticals that use components of the immune system,
particularly antibodies, to fight diseases. The Company's two principal
programs are directed towards cancer and HIV. In the case of cancer, the
Company is developing vaccine products that are designed to induce specific
antibody responses to cancer antigens. In the case of HIV, the Company is
developing therapeutic products by genetically engineering molecules that
function as antibodies and selectively target HIV and HIV-infected cells for
neutralization or destruction. The Company also is actively engaged in
research and discovery of compounds based on the HIV receptor, CD4, and HIV co-
receptors, including CCR5 and CXCR4, and their roles in viral attachment,
fusion and entry.
The following table summarizes the status of the principal development
programs, product candidates and products of the Company and identifies any
related corporate collaborator:
Corporate
Program/product Indication/use Status(1) Collaborator
Cancer Therapeutics
GMK Vaccine for melanoma Phase III BMS
MGV Vaccine for Phase I/II BMS
colorectal cancer,
lymphoma, small
cell lung cancer,
sarcoma, gastric
cancer, and
neuroblastoma
HIV Therapeutics
PRO 542 HIV therapy Phase I/II --
PRO 367 HIV therapy Phase I/II --
expected to
commence in
the first half
of 1998
HIV Co-receptor/ HIV therapy Research Roche
Fusion (using
ProSys assays)
HIV Attachment Drug HIV therapy Research AHP(2)
Screen
ProVax HIV vaccine Research --
Assays and Reagents
ONCOTECT GM Clinical assay for In clinical --
cancer prognosis investigational
use
sCD4, gp120 Research reagents On market DuPont de
Nemours &
Company,
Intracel
Corporation
(1) "Research" means initial research related to specific molecular targets,
synthesis of new chemical entities, assay development and/or screening for
the identification of lead compounds.
Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
"Phase I": Evaluation of safety.
"Phase II": Evaluation of safety, dosage and efficacy.
"Phase III": Larger scale evaluation of safety and efficacy potentially
requiring larger patient numbers, depending on the clinical indication for
which marketing approval is sought.
"In clinical investigational use" means being used by the Company to measure
antibody levels of patients in clinical trials.
See "Business--General-Government Regulation" and "--Assays and Reagents."
(2)"AHP" means the Wyeth-Ayerst Research Division of American Home Products
Corporation.
3
Cancer Therapeutics
Cancer is a set of different diseases, each of which is characterized by
aberrations in cell growth and differentiation. The establishment and spread
of a tumor is a function of its growth characteristics and its ability to
suppress or evade the body's normal defenses, including surveillance and
elimination of cancer cells by the immune system. Eradication of malignant
cells which can metastasize (i.e., spread) to vital organs, leading to death,
is central to the effective treatment of cancer.
Despite recent advances in treatment, cures in many cancer areas continue
to suffer from serious limitations. The principal therapies for cancer have
historically been surgery, radiation and chemotherapy. A significant drawback
to conventional anti-cancer therapy is that occult (i.e., hidden) or residual
disease is difficult or impossible to eliminate fully, which can lead to
relapse. Surgery may be used to remove primary masses of some solid tumors;
however, it cannot be used to remove occult disease. Conventional treatment
with combination chemotherapy and radiation may not be capable of eradicating
cancers completely because of inadequate potency at the tumor site resulting
from limitations on drug or radiation doses due to potential side-effects to
healthy tissues. Moreover, while more recently introduced biological drugs,
such as interferons, have in some cases represented an improvement over
traditional cytotoxic therapy, they have proven effective only on a limited
basis and only in certain types of cancer and have adverse side effects.
Because of the inability of traditional cancer therapies to address
adequately occult and residual cancers, non-specific toxicities and limited
potency, a significant need exists for new therapeutic products. To address
this demand, cancer vaccines are now being developed to stimulate the natural
defense mechanisms of the immune system to fight cancer. Unlike traditional
infectious disease vaccines that are used to prevent infection in the general
population, most cancer vaccines are therapeutic, meaning that they are being
developed to prevent recurrence of cancer in people whose cancer is in
remission following treatment by conventional therapies (including surgical
removal). In some cases, cancer vaccines are also being designed for use in
the prevention of cancer in individuals who are at high risk for the disease.
A major challenge in cancer vaccine development results from the fact that
the natural human immune response generally does not produce sufficient
antibodies to fight cancer cells because the immune system often does not
recognize the difference between normal cells and cancer cells. Consequently,
a primary objective in the development of cancer vaccines is to train the
immune system to recognize cancer cells as a threat. If this can be achieved
and the immune system can produce sufficient antibodies to the cancer, then the
recurrence of the cancer may be prevented. Most cancer vaccines of parties
other than the Company that are in clinical development consist of dead cancer
cells or crude extracts from cancer cells. Unlike the Company's vaccine
technology, these approaches are limited by their inability to identify the
active components of the vaccine or measure specific immune responses.
Progenics' Technology: Ganglioside Conjugate Vaccines
Progenics' cancer vaccine program involves the use of purified
gangliosides as cancer antigens. Gangliosides are chemically-defined molecules
composed of carbohydrate and lipid components. Certain gangliosides are
usually found in low amounts in normal human tissue, but are abundant in
certain cancers, such as melanoma, colorectal cancer, lymphoma, small cell lung
cancer, sarcoma, gastric cancer and neuroblastoma.
4
Because gangliosides alone do not normally trigger an immune response in
humans, Progenics attaches gangliosides to large, highly immunogenic carrier
proteins to form "conjugate" vaccines designed to trigger specific immune
responses to ganglioside antigens. To further augment this immune response,
Progenics adds an immunological stimulator, known as an "adjuvant," to its
ganglioside-carrier protein conjugate.
The Company's ganglioside conjugate vaccines stimulate the immune system
to produce specific antibodies to ganglioside antigens. These antibodies have
been shown in vitro to recognize and destroy cancer cells. Based on these
tests and the clinical trial results described below, the Company believes that
vaccination of cancer patients with ganglioside conjugate vaccines will delay
or prevent recurrence of cancer and prolong overall survival.
The Company's cancer vaccines use known amounts of chemically-defined
antigens, not dead cancer cells or crude extracts from cancer cells. As a
result, Progenics is able to measure specific immune responses to the
gangliosides in its vaccines. The Company also believes that there is a
reduced likelihood of variability in its products as compared to vaccines which
are prepared from dead cancer cells or crude extracts from cancer cells or
which require complicated manufacturing processes.
GMK: Therapeutic Vaccine For Malignant Melanoma
Progenics' most advanced product under development is GMK, a proprietary
therapeutic vaccine for melanoma that is currently in pivotal Phase III
clinical trials. The Company is collaborating with BMS on this program. GMK
is the first cancer vaccine based on a defined cancer antigen to enter Phase
III clinical trials. GMK is designed to prevent recurrence of melanoma in
patients who are at risk of relapse after surgery. GMK is composed of the
ganglioside GM2 conjugated to the carrier protein keyhole limpet hemocyanin
("KLH") and combined with the adjuvant QS-21. QS-21 is the lead compound in
the Stimulon_ family of adjuvants developed and owned by Aquila
Biopharmaceuticals Inc. ("Aquila").
Target Market
Melanoma is a highly lethal cancer of the skin cells that produce the
pigment melanin. In early stages melanoma is limited to the skin, but in later
stages it spreads to the lungs, liver, brain and other organs. The Company
estimates that there are 300,000 melanoma patients in the United States today.
The American Cancer Society estimates that 40,300 patients in the United States
will be newly diagnosed with melanoma in 1997. In the United States, the
incidence of melanoma is increasing at a rate of approximately 6% per year, an
increase in incidence that is faster than that of any other cancer in men and
second only to lung cancer in women. Projections suggest that by the year 2000
one in 75 Americans will develop melanoma within their lifetime. Increased
exposure to the ultraviolet rays of the sun may be an important factor
contributing to the increase in new cases of melanoma.
Melanoma patients are categorized according to the following staging
system:
Melanoma Staging
Stage I Stage II Stage III Stage IV
lesion less lesion greater metastasis to distant
than 1.5 mm than 1.5 mm regional metastasis
thickness thickness draining lymph
nodes
No apparent local spread regional
metastasis from primary spread from
cancer site primary cancer
site
GMK is designed for the treatment of patients with Stage II or Stage III
melanoma. It is estimated that these patients comprise about 50% of the total
number of melanoma patients and, accordingly, the Company estimates that there
are currently 150,000 Stage II and III melanoma patients in the United States.
According to the American Cancer Society, an estimated 60% to 80% of Stage III
melanoma patients will experience recurrence of their cancer and die within
five years after surgery.
5
Current Therapies
Standard treatment for melanoma patients includes surgical removal of the
cancer. Thereafter, therapy varies depending on the stage of the disease. For
Stage I and II melanoma patients, treatment generally consists of close
monitoring for recurrence. The only approved treatment for Stage III melanoma
patients is high-dose alpha interferon. In a recently reported study, the
median recurrence-free survival period after surgery for patients treated with
high-dose alpha interferon was 20 months versus 12 months for patients who
received no treatment. In addition, the median overall survival period after
surgery was 46 months for the treated group versus 34 months for the untreated
group. However, treatment with high-dose alpha interferon causes substantial
toxicities, requires an intensive treatment over twelve months (intravenous
injections five days a week for the first month followed by subcutaneous
injections three times a week for the remaining eleven months) and costs about
$35,000 per year.
Other approaches for treatment of Stage II or III melanoma patients are
currently under investigation, but none has been approved for marketing. These
experimental therapies include chemotherapy, low-dose alpha interferon and
other vaccines.
Clinical Trials
GMK entered pivotal Phase III clinical trials in the United States in
August 1996. In addition, Progenics plans two international Phase III clinical
trials of GMK, one of which commenced enrollment of patients in June 1997 and
the other of which is expected to commence in the first half of 1998. GMK is
administered in the studies on an out-patient basis by 12 subcutaneous
injections over a two-year period.
The ongoing U.S. Phase III 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, which is expected to enroll 850 patients, is being conducted nationally
by the Eastern Cooperative Oncology Group ("ECOG") in conjunction with the
Southwest Oncology Group ("SWOG") and other major cancer centers, cooperative
cancer research groups, hospitals and clinics. ECOG and SWOG are leading
cooperative cancer research groups supported by the NCI and are comprised of
several hundred participating hospitals and clinics, primarily in the United
States. The primary endpoint of the trial is to compare the recurrence of
melanoma in patients receiving GMK versus in patients receiving high-dose alpha
interferon. The study will also compare quality of life and overall survival
of patients in both groups.
The second Phase III clinical trial is a randomized double-blind, placebo-
controlled study in Stage IIb and Stage III melanoma patients who have
undergone surgery but are at high risk for recurrence. This trial, which
enrolled its first patients in June 1997 in New Zealand, will be conducted by
major cancer centers, hospitals and clinics in Europe, Australia, New Zealand
and South Africa. In the United Kingdom, the study will be conducted by the
Institute of Cancer Research ("ICR") of the United Kingdom, a major
government-sponsored cancer research organization. The primary endpoint of the
trial is to compare the recurrence of melanoma in patients receiving GMK versus
in patients receiving placebo. The study will also compare overall survival of
patients in both groups.
The third Phase III clinical trial will be a randomized study exclusively
in Stage IIa (early Stage II) melanoma patients who have undergone surgery but
are at intermediate risk for recurrence. This trial, which the Company expects
will commence in the first half of 1998, will be conducted in Europe by the
EORTC, the major cooperative cancer research group in Europe. Patients will be
randomized to receive either GMK or observation with no treatment. The primary
endpoint of the trial is to compare the recurrence of melanoma in patients
receiving GMK versus in patients receiving observation with no treatment. The
study will also compare overall survival of patients in both groups.
A predecessor of GMK, called GM2-BCG, which combined GM2 ganglioside with
the adjuvant BCG, underwent clinical testing at Sloan-Kettering in the late
1980s. In a double-blind, randomized Phase II study in 122 Stage III melanoma
patients, subjects in the treated group received GM2-BCG for six months after
surgery; subjects in the control group received the same regimen with BCG
alone. The median recurrence-free survival period after surgery for patients
treated with GM2-BCG was 33 months versus 17 months for the patients in the
control group. In addition, the median overall survival period after surgery
for patients in the treated group was 70 months versus 30 months for patients
in the control group. Approximately 85% of treated patients developed
antibodies to GM2 ganglioside. The presence of these antibodies significantly
correlated with improved recurrence-free and overall survival of patients.
6
Phase I/II clinical trials of GMK under institutional INDs were conducted
at Sloan-Kettering over the last six years. In these studies, approximately
120 patients, most of whom had Stage III melanoma, were treated with GMK. All
patients receiving GMK at the dose level being used in the current Phase III
trials of GMK developed antibodies to GM2 ganglioside. Patients treated with
GMK had levels of antibody to GM2 ganglioside that were on average four times
higher and also were longer lasting than in patients treated with GM2-BCG in
the GM2-BCG Phase II trial. In addition, GMK was well tolerated by all
patients in these studies, and no clinically significant side effects
attributable to the vaccine were observed.
MGV: Therapeutic Vaccine For Certain Cancers
Progenics' second ganglioside conjugate vaccine in development, MGV, is a
proprietary therapeutic vaccine for cancers which express GD2 or GM2
gangliosides. These cancers include colorectal cancer, lymphoma, small cell
lung cancer, sarcoma, gastric cancer, neuroblastoma and melanoma. The Company
is collaborating with BMS on this program. MGV has three components: (i) GM2-
KLH (GM2 ganglioside conjugated to KLH); (ii) GD2-KLH (GD2 ganglioside
conjugated to KLH); and (iii) QS-21 adjuvant. MGV is designed to prevent
recurrence of cancer and prolong overall survival of patients after their
cancer has been removed by surgery or reduced by chemotherapy or radiation
therapy.
Clinical Trials
MGV entered Phase I/II clinical trials in September 1996 under an
institutional investigational new drug application ("IND") at Sloan-Kettering.
The primary objectives of the study are to establish the safety of MGV and the
ability of the vaccine to induce specific immune responses to both GD2 and GM2
gangliosides in patients with different cancer types, beginning with melanoma
patients. In addition, a goal of the study is to optimize the ratio of GD2 and
GM2 gangliosides in MGV to be used in future clinical trials.
The GM2-KLH/QS-21 (GMK) and GD2-KLH/QS-21 components of MGV have each
undergone separate clinical testing. To date, six melanoma patients have
received GD2-KLH/QS-21 alone in Phase I/II clinical trials under an
institutional IND at Sloan-Kettering. All six subjects developed antibodies to
GD2 ganglioside following vaccination. In addition, the vaccine was well
tolerated and no clinically significant side effects attributable to the
vaccine were observed. Based on these results as well as the results of
clinical studies with GMK discussed above, the Company expects that patients
receiving MGV will develop antibodies to both GD2 and GM2 gangliosides.
HIV Therapeutics
HIV infection causes a slowly progressive deterioration of the immune
system which results in AIDS. AIDS is characterized by a general collapse of
the immune system leading to a wasting syndrome, frequent opportunistic
infections, rare forms of cancer, central nervous system degeneration and
eventual death. HIV infection is unusual in that individuals testing positive
for the virus can survive for many years without symptoms of the disease.
There are three major routes of transmission of the virus: sexual contact,
exposure to HIV-contaminated blood or blood products and mother-to-child
transmission.
HIV specifically infects cells that have the CD4 receptor on their surface
("CD4+"). CD4+ cells are critical components of the immune system, and include
T lymphocytes, monocytes, macrophages and dendritic cells. The deleterious
effects of HIV are largely due to the replication of the virus in these cells
and the resulting dysfunction and destruction of these cells.
7
HIV-positive individuals display both antibodies and other immune system
responses which are specific to the virus. However, the high fatality rate of
this disease makes it clear that these natural immune system responses do not
provide adequate long-term protection. There are two reasons why these natural
responses are inadequate. First, as described above, the CD4+ T lymphocytes
required to mount an effective immune response against HIV are destroyed,
leaving the immune system too weak to eliminate the virus. Second, HIV
displays a remarkable degree of variability as a result of high rates of
mutation that permit different strains of the virus to escape the immune system
response and progressively replicate throughout the body.
Viral infection involves the binding of the virus to cells, viral entry
into those cells and, ultimately, the commandeering of the host cells'
reproductive machinery, which permits replication of the viral genetic
information and the generation of new copies of the virus. The Company's
scientists and their collaborators have made important discoveries in
understanding how HIV enters human cells and initiates viral replication. In
the 1980s, Company scientists in collaboration with researchers at Columbia
University, the ICR and the Centers for Disease Control and Prevention ("CDC")
demonstrated that the initial step of HIV infection involves the specific
attachment of the virus to the CD4 receptor on the surface of human immune
system cells. These researchers also showed that the gp120 glycoprotein
located on the HIV envelope binds with high affinity to the CD4 receptor.
Although these researchers demonstrated that CD4 was necessary for HIV
attachment, this step is not sufficient to enable the virus to enter the cell
and initiate viral replication.
In June 1996, Company scientists in collaboration with researchers at
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. Recently, Company scientists
in collaboration with researchers at ADARC demonstrated that it is the gp120
glycoprotein that binds to the CCR5 co-receptor as well as to the CD4 receptor.
Recently, these scientists localized the gp120 binding site on CCR5 to a
discrete region at one end of the molecule.
Progenics' HIV Receptor Technologies
Based on the Company's participation in the discoveries of two major
receptors for HIV, Progenics is pursuing several approaches in the research and
development of products designed to block entry of HIV into human immune system
cells. The Company's UnAB and attachment screening programs are based on the
CD4 receptor while its HIV co-receptor fusion program is based on recently
discovered co-receptors, CCR5 and CXCR4.
Because HIV must first attach to the CD4 receptor to infect human cells,
the Company believes that the part of the gp120 glycoprotein that attaches to
the CD4 receptor must remain constant across all strains of the virus. The
gp120 glycoprotein is located on the exterior of both HIV and HIV-infected
cells. Progenics' UnABs incorporate a part of the CD4 receptor into
genetically-engineered molecules that function like antibodies and are designed
to bind specifically to the gp120 glycoprotein of HIV or HIV-infected cells.
In in vitro tests, the Company's UnABs have demonstrated the ability to bind
with high affinity to gp120 glycoproteins from a wide range of HIV strains,
including the strains most prevalent in the United States and the rest of the
world. Because the Company's UnAB technology is targeted to a part of HIV that
is believed to be necessary for the virus to enter cells and not to mutate, the
Company believes that its technology may address the obstacles presented by the
high mutation rate of the virus.
Two of the Company's HIV products under development are based on its
proprietary UnAB technology, although they employ the technology in different
ways. PRO 542 is designed to bind to the gp120 glycoprotein located on the
virus itself, neutralizing the virus and thereby preventing it from infecting
healthy cells. PRO 367 is designed to bind to the gp120 glycoprotein located
on the exterior of HIV-infected cells and destroy those cells by delivering a
lethal dose of radiation. The two products also differ in that each molecule
of PRO 542 has four binding sites for HIV while each molecule of PRO 367 has
two binding sites.
8
Progenics also is applying its HIV technology in two programs designed to
use the Company's proprietary screening assays to identify and develop
potential HIV therapeutics. In its co-receptor/fusion program, the Company is
using its ProSys assays to identify compounds that inhibit the interaction
between HIV and HIV co-receptors, including CCR5 and CXCR4, thereby blocking
viral fusion and entry. In the Company's HIV attachment program, Progenics is
using its proprietary HIV attachment assay to identify small-molecule compounds
that inhibit the interaction between HIV and CD4, thereby blocking viral
attachment.
Target Market
Progenics' therapeutic product candidates are designed primarily for use
in asymptomatic HIV-positive individuals. Accordingly, the target population
for these products is patients who are aware of their infection but do not yet
have AIDS. Although there are few signs of disease in an HIV-positive
individual during the asymptomatic period, the virus is replicating in the body
by infecting healthy cells. It is estimated that in 1996 more than 830,000
people in North America and 20,000,000 people worldwide were infected with HIV.
The CDC estimated that as of December 1996, approximately 220,000 people in the
United States had AIDS.
Current Therapies
At present, two classes of products have received marketing approval from
the U.S. Food and Drug Administration (the "FDA") for the treatment of HIV
infection and AIDS: reverse transcriptase inhibitors and protease inhibitors.
Both types of drugs are inhibitors of viral enzymes and 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.
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. The
potential for resistance is exacerbated by interruptions in dosing which lead
to lower drug levels and permit increased viral replication. Non-compliance is
common in patients on combination therapies as these drug regimens require more
than a dozen tablets to be taken at specific times each day. An additional
problem is that currently approved drugs exhibit substantial toxicities in many
patients, affecting a variety of organs and tissues, including the peripheral
nervous system and gastrointestinal tract. These toxicities often result in
patients interrupting or discontinuing therapy.
Pro 542: HIV Therapy
Progenics is developing PRO 542 for the treatment of HIV infection. PRO
542 is a proprietary UnAB-based product with four binding sites for the gp120
glycoprotein on HIV. PRO 542 is designed to neutralize HIV through one of two
mechanisms: (i) binding to the gp120 glycoprotein and thereby preventing
infection of healthy cells; or (ii) binding to and detaching the gp120
glycoprotein from the virus.
In in vitro and ex vivo tests conducted by Progenics in collaboration with
scientists at ADARC and the CDC, PRO 542 neutralized a wide variety of clinical
strains of HIV as well as viruses in the plasma of HIV-positive individuals.
In comparative in vitro studies at ADARC using a panel of neutralizing
antibodies to HIV, PRO 542 was found to be more potent and broadly neutralizing
than the antibodies to which it was compared. In further studies at ADARC, PRO
542 protected severe combined immune deficient ("SCID") mice transplanted with
human peripheral blood lymphocytes against infection by the three HIV strains
tested, including strains of the virus isolated from HIV-positive individuals.
Progenics initiated two dose-escalation Phase I/II clinical trials of PRO
542 in September 1997. The first study is being conducted in HIV-positive
adult patients at Mount Sinai Medical Center in New York City. The second
trial is being conducted in HIV-positive children at Baylor College of Medicine
in Houston, the University of California at San Francisco and the University of
Pennsylvania by the AIDS Clinical Trials Group, ("ACTG"), a leading cooperative
HIV research group supported by the National Institute of Allergy and
Infectious Diseases ("NIAID"). Both trials will measure safety,
pharmacokinetics and antiviral activity of PRO 542.
9
In September 1997, the Company entered into a collaboration agreement with
Genzyme Transgenics Corporation ("GTC") with the objective of developing a
transgenic source of PRO 542 using GTC proprietary technology. This
collaboration is designed to result in the commercial-scale manufacture of PRO
542 by GTC using a herd of transgenic goats.
PRO 367: HIV Therapy
Progenics is developing PRO 367 as a therapeutic agent designed to destroy
HIV-infected cells. PRO 367 is composed of a proprietary UnAB molecule with two
binding sites for the gp120 glycoprotein linked to a therapeutic radioisotope.
PRO 367 is designed to specifically bind with high affinity to the gp120
glycoprotein on HIV-infected cells and to destroy these cells by delivering a
lethal dose of radiation.
The Company plans to initiate dose-escalation Phase I/II clinical trials
of PRO 367 in the first half of 1998, subject to obtaining necessary regulatory
clearances. The study will assess safety, pharmacokinetics, biodistribution
and antiviral effects of PRO 367 in HIV-positive adult patients.
In in vitro tests, PRO 367 specifically bound with high affinity to the
gp120 glycoprotein on the cell surface. In addition, a pilot Phase I clinical
trial in AIDS patients of a trace-labeled precursor of PRO 367 was conducted
under an institutional IND at Sloan-Kettering. This trial assessed the safety
and pharmacology of the compound with low doses of iodine-131. The compound
was well tolerated by all patients, no clinically significant side effects
attributable to the compound were observed and the compound exhibited suitable
pharmacokinetics for further development.
HIV Co-Receptor/Fusion: HIV Therapy
The Company's first application of its HIV co-receptor technology is
through the use of its proprietary ProSys assays. These assays model fusion of
HIV with human cells rapidly, automatically, sensitively and without the use of
infectious virus. The Company recently entered into a collaboration with Roche
to discover and develop novel HIV therapeutics which target CCR5 and other
fusion co-receptors of the virus. Under the terms of the collaboration, Roche
has received from Progenics an exclusive worldwide license to its HIV co-
receptor technology. Roche is obligated to make up-front and milestone
payments, research funding for up to three years and royalty payments on the
sale of any products commercialized as a result of the collaboration.
HIV Attachment Drug Screen: HIV Therapy
As part of a collaborative research project with the Wyeth-Ayerst Research
Division of American Home Products Corporation ("AHP"), Progenics has developed
a proprietary drug screening assay designed to identify small-molecule
compounds which inhibit attachment of HIV to the CD4 receptor. This assay has
been used in a high-throughput screening program, and the compounds discovered
are undergoing additional studies by the Company and AHP to evaluate further
their antiviral activity.
ProVax: HIV Vaccine
Progenics is conducting research with respect to its ProVax vaccine, a
vaccine candidate which it believes may be useful as a preventative or a
therapeutic treatment for HIV-positive individuals. Progenics is currently
performing government-funded research and development of the ProVax vaccine in
collaboration with ADARC, the Southwest Foundation for Biomedical Research in
San Antonio and the University of Oklahoma Medical Center.
10
Assays and Reagents
Through its immunology expertise, Progenics has developed certain assays,
in addition to its ProSys and HIV attachment assays, which are used both
independently and in collaboration with partners, as well as certain reagents
which are being sold for research use only. These assays are described below.
ONCOTECT GM
Progenics has developed ONCOTECT GM, a clinical assay for assessing
prognosis in patients with melanoma and other cancers. ONCOTECT GM measures
the levels of antibody to GM2 ganglioside in the blood. In clinical trials of
a therapeutic vaccine for melanoma, the presence of these antibodies
significantly correlated with improved recurrence-free and overall survival of
patients. The Company is currently using ONCOTECT GM in its cancer vaccine
clinical trials.
Research Reagents: sCD4 and gp120
Progenics manufactures the research reagents sCD4 and gp120 which it sells
to DuPont de Nemours & Company ("DuPont") and Intracel Corporation ("Intracel")
for resale. DuPont markets and sells gp120 and sCD4 under both the Progenics
and the DuPont names. Intracel markets and sells gp120 and sCD4 under both the
Progenics and Intracel names. These products are sold worldwide for research
use. While the Company's only customers for these reagents are DuPont and
Intracel, in light of the limited revenues received from sales of these
reagents, the Company does not believe that the loss of either of these
customers would have a material adverse effect on the Company.
Corporate Collaborations
Bristol-Myers Squibb Company
In July 1997, the Company and BMS entered into the BMS License Agreement.
Pursuant to the BMS License Agreement, the Company granted to BMS an exclusive,
worldwide license to make, have made, use, sell, have sold and develop GMK and
MGV and any other product to which Progenics has rights that include the GM2 or
GD2 ganglioside antigens and are used for the treatment or prevention of human
cancer. BMS is entitled under the BMS License Agreement to grant sublicenses,
subject to certain restrictions.
Pursuant to the BMS License Agreement and the related sublicense
agreements (collectively, the "BMS Agreements"), BMS has made certain payments
to the Company and is required to make milestone payments and pay royalties on
sales of licensed products. In July 1997, BMS paid the Company approximately
$13.3 million, representing (i) $11.5 million as reimbursement for expenses
previously incurred by Progenics in the development of GMK and MGV and
licensing fees and (ii) $1.8 million as reimbursement of the Company's clinical
development costs for the period from April 15, 1997 to September 30, 1997.
BMS is also required to make future payments of up to $61.5 million upon
achievement of specified milestones relating to the development and regulatory
approval of GMK, MGV or other products that include the GM2 or GD2 ganglioside
antigens. The amount of these milestone payments will depend on the product
candidate achieving the specified milestone and, with respect to MGV, the
indications for which it is developed. BMS is also required to pay royalties
on any sale of licensed products and to fund continued development, clinical
trials and regulatory activities of GMK and MGV pursuant to plans agreed to by
the parties. There can be no assurance that the Company will receive milestone
or royalty payments from BMS or that funding for the GMK or MGV programs will
not be curtailed or terminated.
In connection with the BMS License Agreement, the Company granted to BMS
sublicenses to the technology and other rights licensed to the Company from
each of Sloan-Kettering, The Regents of the University of California (the
"Regents") and Aquila under the licenses with these entities discussed under
"--Licenses." These sublicenses are exclusive as to the Sloan-Kettering and
the Regents sublicenses and non-exclusive as to the Aquila sublicense and are
intended, in general, to make available to BMS the technology licensed by the
Company from these entities and used to make GMK and MGV. BMS is entitled
under these sublicenses to grant further sublicenses, subject to certain
restrictions.
11
In connection with payments made by BMS to the Company under the BMS
License Agreement, the Company made certain payments to licensors as an
inducement to these licensors to enter into agreements with the Company and BMS
amending certain provisions of the prime licenses and granting to BMS certain
related rights. Future payments made by BMS to the Company under the BMS
License Agreement also trigger payment obligations to these licensors. See
"--Licenses."
The BMS Agreements terminate at various times related, in general, to the
expiration or abandonment of the related patents or to the first commercial
sale of products. The agreements can also be terminated by either party upon a
material, uncured breach by the other party. BMS has the further right to
terminate the BMS License Agreement (including its funding and milestone
obligations) as to specified licensed products at specified times.
Roche Group
In December 1997, the Company entered into a collaboration agreement with
Roche to discover and develop novel HIV therapeutics which target the recently
identified fusion co-receptors of the virus (the "Roche Agreement"). This
collaboration, among other things, provides for Roche to apply its library of
compounds to original screening assays of the Company to identify inhibitors of
the interaction between HIV co-receptors and HIV.
Under the terms of the Roche Agreement, Progenics has granted to Roche an
exclusive worldwide license to develop, make, have made, use, sell, offer to
sell and import any covered products for the therapy of HIV infection. The
license covers products to which Progenics has rights or that are developed as
a result of the collaboration and which have been identified as, or developed
for the purpose of, inhibiting the interaction between chemokine receptors that
act as HIV co-receptors, including CCR5 and CXCR4, and HIV, which interaction
results in fusion of HIV with cells. The license does not extend to certain
classes of molecules, as to which Progenics has retained rights. Subject to
certain restrictions, Roche retains the right to grant sublicenses under the
Roche Agreement.
Pursuant to the Roche Agreement, Roche will provide to Progenics up-front
and milestone payments, research funding for up to three years, as well as
royalty payments on the sale of any products commercialized as a result of the
collaboration. The Company is also entitled to certain contingent licensing
rights.
The collaboration remains in full force, subject to the exceptions
identified below, until the expiration of all obligations to pay royalties
pursuant to any of the licenses granted therein. The Agreement can be
terminated by either party upon a material, uncured breach by the other party.
Roche has the further right to terminate the Roche Agreement or the
collaboration contemplated under the Roche Agreement at specified times;
however, in either case, Roche will not be relieved of certain minimum research
funding obligations.
This collaboration is in the early stage of drug discovery. There can be
no assurance that the Company will receive additional milestone or any royalty
payments from Roche, that funding for the program contemplated by the
collaboration will not be curtailed or terminated or that any contingent
licensing rights will be granted.
Licenses
The Company is a party to license arrangements under which it has obtained
rights to use certain technologies in its cancer and HIV programs. Set forth
below is a summary of those licenses that the Company believes to be important
to its business.
12
The Company is party to a license agreement with Sloan-Kettering under
which the Company obtained the worldwide, exclusive rights to certain
technology relating to ganglioside conjugate vaccines, including GMK and MGV,
and their use to treat or prevent cancer. The Sloan-Kettering license
terminates upon the expiration of the last of the licensed patents or 15 years
from the date of the first commercial sale of a licensed product pursuant to
the agreement, whichever is later. In addition to patent applications, the
Sloan-Kettering license includes the exclusive rights to use certain relevant
technical information and know-how. A number of Sloan-Kettering
physician-scientists also serve as consultants to the Company.
The Company is party to a license agreement with the Regents under which
the Company obtained the exclusive rights to an issued U.S. patent covering
certain ganglioside conjugate vaccines. The license agreement terminates upon
the expiration of the patent.
The Company is party to a license agreement with Columbia University under
which the Company has obtained exclusive, worldwide rights to certain
technology and materials relating to CD4 and its use to treat or prevent HIV
infection. The license agreement will terminate upon the expiration of the
last of the licensed patents.
The Company has entered into a license and supply agreement with Aquila
pursuant to which Aquila agreed to supply the Company with all of its
requirements for the QS-21 adjuvant for use in certain ganglioside-based cancer
vaccines, including GMK and MGV. QS-21 is the lead compound in the Stimulon_
family of adjuvants developed and owned by Aquila. The license terminates upon
the expiration of the last of the licensed patents.
The licenses to which the Company is a party impose various milestone,
commercialization, sublicensing, royalty and other payment, insurance,
indemnification and other obligations on the Company and are subject to certain
reservations of rights. Failure by the Company to comply with these
requirements could result in the termination of the applicable agreement, which
could have a material adverse effect on the Company's business.
In connection with the BMS License Agreement, the Company granted to BMS
sublicenses to the technology and other rights licensed to the Company from
each of Sloan-Kettering, the Regents and Aquila under the licenses with these
entities described above. See "--BMS Collaboration."
Government Grants And Contracts
Through December 31, 1997, the Company had been awarded government grants
aggregating approximately $2,677,000 under the Small Business Innovation
Research ("SBIR") program of the NIH for the Company's commercial development
of PRO 542, PRO 367, ProVax vaccine and ProSys assays. Through December 31,
1997 the Company had recognized approximately $2,135,000 of such amount as
revenue. In addition, the Company has been awarded a $812,000 multi-year grant
under a contract with the Department of Defense for work related to ProVax
vaccine. Through December 31, 1997 the Company had recognized approximately
$748,000 of such amount as revenue.
In general, under the terms of these grants the Company has, subject to
certain rights of the government described below, all right, title and interest
to all patents, copyrights and data pertaining to any product developed.
However, under existing regulations, the government receives a royalty-free
license for federal government use with respect to patents developed by grant
recipients. In addition, the government may, in certain circumstances, require
the Company to license technology resulting from the funded projects to third
parties and may require that the Company manufacture substantially all of the
products resulting from a particular grant in the United States.
The government's obligation to make payments under these grants is subject
to appropriation by the United States Congress for funding in each such year.
Moreover, it is possible that Congress or the government agencies that
administer these government research programs will determine to scale back
these programs or terminate them or that the government will award future
grants to competitors of the Company instead of the Company. In addition,
while Progenics intends to pursue additional government grants related to its
areas of research and development, there can be no assurances that the Company
will be awarded any such grants in the future or that any amounts derived
therefrom will not be less than those received to date.
In September 1997, the Company was awarded a two-year, protein
manufacturing contract for $1,601,000 from the NIH.
13
Patents and Proprietary Technology
Progenics' policy is to protect its proprietary technology, and the
Company considers the protection of such rights to be important to its
business. In addition to seeking U.S. patent protection for many of its
inventions, the Company generally files patent applications in Canada, Japan,
Western European countries and additional foreign countries on a selective
basis in order to protect the inventions deemed to be important to the
development of its foreign business.
Under a license agreement with Sloan-Kettering, Progenics obtained
worldwide, exclusive rights to certain technology relating to ganglioside
conjugate vaccines, including GMK and MGV, and their use to treat or prevent
cancer. This technology is the subject of a patent application filed by Sloan-
Kettering in the U.S. and 25 foreign countries claiming composition of matter
and methods of production and use of certain ganglioside conjugate vaccines for
the treatment or prevention of human cancer.
Under a license agreement with Columbia University, Progenics obtained
worldwide, exclusive rights to certain technology relating to CD4 and its use
to treat or prevent HIV infection. This technology is the subject of issued
U.S. and European patents and several related U.S. and foreign patent
applications filed by Columbia University. The issued patents and the patent
applications claim composition of matter and methods of production and use of
certain CD4-based products for the treatment or prevention of HIV infection.
Progenics has also filed a number of U.S. and foreign patent applications on
its UnAB, ProSys and ProVax technologies and clinical uses of these
technologies.
Progenics has also filed a number of U.S. and foreign patent applications
(one of which is owned jointly with ADARC) relating to the discovery of an HIV
co-receptor, CCR5. In addition to the risks described above, the Company is
aware that other groups have claimed discoveries similar to that covered by the
Company's patent applications. These groups may have made their discoveries
prior to the discoveries covered by the Company's patent applications and may
have filed their applications prior to the Company's patent applications. The
Company does not expect to know for several years the relative strength of its
patent position as compared to these other groups.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade has resulted in certain changes to United States patent laws
that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer
a period of seventeen years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate twenty years
from the earliest effective filing date of the application. Because the time
from filing to issuance of patent applications is often more than three years,
a twenty-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position.
Government Regulation
The Company and its products are subject to comprehensive regulation by
the FDA in the United States 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,
record keeping, advertising, and promotion of the Company's products.
14
FDA approval of the Company's 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 United States. The
process of obtaining approvals from the FDA can be costly, time consuming, and
subject to unanticipated delays. There can be no assurance that approvals of
the Company's proposed products, processes, or facilities will be granted on a
timely basis, or at all. Any failure to obtain or delay in obtaining such
approvals would adversely affect the ability of the Company to market its
proposed products. Moreover, even if regulatory approval is granted, such
approval may include significant limitations on indicated uses for which a
product could be marketed.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) preclinical
laboratory and animal tests, (ii) submission to the FDA of an IND, which must
become effective before clinical trials may begin, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the product for its intended indication, (iv) submission to the FDA of a
marketing application and (v) FDA review of the marketing application in order
to determine, among other things, whether the product is safe and effective for
its intended uses. There is no assurance that the FDA review process will
result in product approval on a timely basis, or at all.
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.
A New Drug Application ("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; nonclinical pharmacology and toxicology; human
pharmacokinetics and bioavailability; and clinical data. The new drug may not
be marketed in the United States until the FDA has approved the NDA.
A Product License Application ("PLA") is an application to the FDA to
market a biological product. The PLA 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 United States until a product license is issued and until the
establishment where the product is to be manufactured has been issued an
establishment license.
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 cGMP, 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 and are reviewed
by the FDA prior to the commencement of human clinical trials. Unless the FDA
objects to, or makes comments 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. There can be no assurance that
submission of an IND will result in FDA authorization to commence clinical
trials. See "Risk Factors--Uncertainty Associated with Preclinical and
Clinical Testing."
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and 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 ("IRB").
The IRB 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.
15
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. During Phase I, when the drug is initially
administered to human subjects, the product is tested for safety, dosage
tolerance, absorption, metabolism, distribution, and excretion. Phase II
involves studies in a limited patient population to (i) evaluate preliminarily
the efficacy of the product for specific, targeted indications, (ii) determine
dosage tolerance and optimal dosage and (iii) 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 II evaluation, Phase III 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 PLA, approval of which must be
obtained prior to commencement of commercial sales. The FDA may refuse to
accept the NDA or PLA for filing if certain administrative and content criteria
are not satisfied, and even after accepting the NDA or PLA for review, the FDA
may require additional testing or information before approval of the NDA or
PLA. The Company's analysis of the results of its clinical studies is subject
to review and interpretation by the FDA, which may differ from the Company's
analysis. There can be no assurance that the Company's data or its
interpretation of data will be accepted by the FDA. In any event, the FDA must
deny an NDA or PLA if applicable regulatory requirements are not ultimately
satisfied. In addition, delays or rejections may be encountered 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.
Under current FDA regulations, in addition to the licensing of a vaccine
product itself through the PLA process, any establishment used to manufacture a
vaccine product must also be licensed. To obtain the necessary establishment
license, an establishment license application ("ELA") describing the
facilities, equipment, processes, and personnel used to manufacture the product
in question must be submitted to the FDA. The establishment license will be
granted only after the FDA inspects the establishment and determines that the
establishment complies with all applicable standards, including, but not
limited to, compliance with cGMP and the ability to consistently manufacture
the product at the establishment in accordance with the PLA. FDA approval of
both the PLA and ELA must be received prior to marketing of a vaccine product.
Therefore, any delay in FDA's approval of the ELA, or refusal to approve the
ELA, would delay or prevent the marketing of the product in question.
On May 14, 1996, the FDA adopted a new regulation, effective May 24, 1996,
regarding the license application process for certain biological products.
Those biological products that fall within the regulation will be reviewed on
the basis of a single biologics license application ("BLA"), rather than a
PLA/ELA. The BLA includes the same information as the current PLA, but certain
of the data now required as part of the ELA do not have to be submitted or
reviewed during the approval process. This new rule is intended, at least in
part, to lessen the regulatory burden on manufacturers of certain biologics and
accelerate the approval process. There can be no assurance, however, that the
FDA will consider the new regulation applicable to any of the Company's
products, or that the BLA process, if applicable to the Company's products,
will have the intended effect of reducing review times.
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 (including after approval) 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 and/or the imposition of
criminal penalties against the manufacturer and/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 the Company's products under development.
16
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, and that provide meaningful therapeutic benefit over existing
treatments. The Company believes that certain of its products in development
may qualify for accelerated approval. The Company cannot predict the ultimate
impact, however, of the FDA's accelerated approval procedures on the timing or
likelihood of approval of any of its potential products or those of any
competitor. In addition, the approval of a product under the accelerated
approval procedures is subject to various conditions, including the requirement
to verify clinical benefit in postmarketing studies, and the authority on the
part of the FDA to withdraw approval under streamlined procedures if such
studies do not verify clinical benefit or under various other circumstances.
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.
The Company does not currently have any facilities or personnel outside of the
United States.
In addition to regulations enforced by the FDA, the Company also is
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. The Company's research and development
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for storing, handling, using and disposing of such materials comply
with the standards prescribed by applicable regulations, the risk of accidental
contaminations or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could have a material adverse effect
of the Company.
Manufacturing
The Company currently manufactures GMK, MGV, PRO 542 and PRO 367 in its
two pilot production facilities in Tarrytown, New York. One of these
facilities is for the production of vaccines and the other is for the
production of recombinant proteins. The Company believes that its existing
production facilities will be sufficient to meet the Company's initial needs
for clinical trials. However, these facilities may be insufficient for all of
the Company's late-stage clinical trials and for its commercial-scale
requirements. Accordingly, the Company expects to be required in the future to
expand its manufacturing staff and facilities and obtain new facilities or to
contract with third parties or its corporate collaborators to assist with
production. Pursuant to the BMS License Agreement, the Company granted to BMS
manufacturing rights with respect to GMK and MGV. In the event the Company
decides to establish a full-scale commercial manufacturing facility, the
Company will require substantial additional funds and will be required to hire
and train significant numbers of employees and comply with the extensive cGMP
regulations applicable to such a facility. In addition, if any of the
Company's products produced at its facilities were regulated as biologics, the
Company could be required to submit an ELA and obtain an establishment license
for its facilities.
Sales and Marketing
Progenics plans to market products for which it obtains regulatory
approval through co-marketing, co-promotion, licensing and distribution
arrangements with third party collaborators. The Company believes that this
approach will both increase market penetration and commercial acceptance of its
products and enable the Company to avoid expending significant funds to develop
a large sales and marketing organization. Pursuant to their collaboration, the
Company granted to BMS exclusive worldwide marketing rights to GMK and MGV. In
addition, the Company has entered into collaborative marketing arrangements
with DuPont and Intracel with respect to the sCD4 and gp120 research reagents.
17
Competition
Competition in the biopharmaceutical industry is intense and characterized
by ongoing research and development and technological change. The Company
faces competition from many companies and major universities and research
institutions in the United States and abroad. Many of the Company's
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 those of the Company. There can
be no assurance that the products under development by the Company and its
collaborators will be able to compete successfully with existing products or
products under development by other companies, universities and other
institutions. With respect to GMK, the FDA and certain other regulatory
authorities have approved high-dose alpha interferon for marketing as a
treatment of patients with high risk melanoma. High-dose alpha interferon has
demonstrated some efficacy for this indication. With respect to the Company's
products for the treatment of HIV infection, two classes of products made by
competitors of the Company have been approved for marketing by the FDA for the
treatment of HIV infection and AIDS: reverse transcriptase inhibitors and
protease inhibitors. Both types of drugs are inhibitors of viral enzymes that
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.
A significant amount of research in the biopharmaceutical field is also
being carried out at academic and government institutions. The Company's
strategy is to in-license technology and product candidates from academic and
government institutions. These institutions are becoming increasingly aware of
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 the Company 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 affect the Company's business strategy.
Competition with respect to the Company's technologies and product
candidates is and will be based, among other things, on effectiveness, safety,
reliability, availability, price and patent position. Another important factor
will be the timing of market introduction of the Company's or competitive
products. Accordingly, the speed with which Progenics can develop products,
complete the clinical trials and approval processes and ultimately supply
commercial quantities of the products to the market is expected to be an
important competitive factor. The Company's competitive position will also
depend upon its 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 often substantial period between
technological conception and commercial sales.
Product Liability
The testing, manufacturing and marketing of the Company's products
involves an inherent risk of product liability attributable to unwanted and
potentially serious health effects. To the extent the Company elects to test,
manufacture or market products independently, it will bear the risk of product
liability directly. Pursuant to the BMS License Agreement, BMS is required to
indemnify the Company for liabilities and expenses resulting from, among other
things, the manufacture, use or sale of Licensed Products (as defined in the
BMS License Agreement), subject to certain conditions. The Company has
obtained insurance in the amount of $5,000,000 against the risk of product
liability. This insurance is subject to certain deductibles and coverage
limitations. There is no guarantee that insurance will continue to be
available at a reasonable cost, or at all, or that the amount of such insurance
will be adequate.
18
Human Resources
At December 31, 1997, the Company had 32 full-time employees, three of
whom (including Dr. Maddon) hold Ph.D. degrees or foreign equivalents and two
of whom (including Dr. Maddon) hold M.D. degrees. At such date, 25 employees
were engaged in research and development, medical and regulatory affairs and
manufacturing activities and seven were engaged in finance, administration and
business development. The Company considers its relations with its employees
to be good. None of its employees is covered by a collective bargaining
agreement.
Executive Officers and Key Management
The directors, executive officers and key management of the Company as of
December 31, 1997 were as follows:
Name Age Position
Paul J. Maddon, M.D., Ph.D. 38 Chairman of the Board, Chief
Executive Officer, President
and Chief Science Officer
Robert J. Israel, M.D. 41 Vice President, Medical
Affairs
Robert A. McKinney, CPA 41 Vice President, Finance and
Operations and Treasurer
William C. Olson, Ph.D. 35 Director, Research and
Development
Patricia C. Fazio 39 Senior Director, Project
Management and Health & Safety
______________________________
Paul J. Maddon, M.D., Ph.D. is the founder of the Company and has served
in various capacities since its inception, including Chairman of the Board of
Directors, Chief Executive Officer, President and Chief Science Officer. From
1981 to 1988, Dr. Maddon performed research at the Howard Hughes Medical
Institute at Columbia University in the laboratory of Dr. Richard Axel. Dr.
Maddon serves on two NIH scientific review committees and is a member of the
editorial board of the JOURNAL OF VIROLOGY. He received a B.A. in biochemistry
and mathematics and a M.D. and a Ph.D. in biochemistry and molecular biophysics
from Columbia University. Dr. Maddon has been an Adjunct Assistant Professor
of Medicine at Columbia University since 1989.
Robert J. Israel, M.D. joined the Company in October 1994 and has been
Vice President, Medical Affairs since that time. From 1991 to 1994, Dr. Israel
was Director, Clinical Research-Oncology and Immunohematology at Sandoz
Pharmaceuticals Corporation, a pharmaceutical company. From 1988 to 1991, he
was Associate Director, Oncology Clinical Research at Schering-Plough
Corporation, a pharmaceutical company. Dr. Israel is a licensed physician and
is board certified in both internal medicine and medical oncology. He received
a B.A. in physics from Rutgers University and a M.D. from the University of
Pennsylvania and completed an oncology fellowship at Sloan-Kettering. Dr.
Israel has been a consultant to the Solid Tumor Service at Sloan-Kettering
since 1987.
Robert A. McKinney, CPA joined the Company in September 1992. Mr.
McKinney served as Director, Finance and Operations and Treasurer from 1992 to
January 1993, when he was appointed Vice President, Finance and Operations and
Treasurer of Progenics. From 1991 to 1992, he was Corporate Controller at
VIMRx Pharmaceuticals, Inc., a biotechnology research company. From 1990 to
1991, Mr. McKinney was Manager, General Accounting at Micrognosis, Inc., a
software integration company. From 1985 to 1990, he was an audit supervisor at
Coopers & Lybrand L.L.P., an international accounting firm. Mr. McKinney
studied finance at the University of Michigan, received a B.B.A. in accounting
from Western Connecticut State University, and is a Certified Public
Accountant.
19
William C. Olson, Ph.D. joined the Company in May 1994 and presently
serves as Director, Research and Development. From 1989 to 1992, Dr. Olson
served as a Research Scientist at Johnson & Johnson, and from 1992 until 1994
he was a Development Scientist at MicroGeneSys, Inc., a biotechnology company.
Dr. Olson received a Ph.D. from the Massachusetts Institute of Technology and a
B.S. from the University of North Dakota. Both degrees were awarded in the
field of chemical engineering.
Patricia C. Fazio joined the Company in August 1992. Ms. Fazio has served
in various management positions at Progenics, most recently as Senior Director,
Project Management and Health & Safety. From 1987 to 1992, she was Senior
Research Technician and Laboratory Manager at the Howard Hughes Medical
Institute at Columbia University. From 1982 to 1987, Ms. Fazio was Chief
Laboratory Technologist in the Department of Pathology at Columbia Presbyterian
Medical Center. She received a B.S. in biology and chemistry at the College of
New Rochelle.
An important component of Progenics' scientific strategy is its
collaborative relationship with leading researchers in cancer and virology.
Certain of these researchers are members of the Company's two Scientific
Advisory Boards (each an "SAB"), one in cancer and one in virology. The
members of each SAB attend periodic meetings and provide Progenics with
specific expertise in both research and clinical development. In addition,
Progenics has collaborative research relationships with certain individual SAB
members. All members of the SABs are employed by employers other than the
Company and may have commitments to or consulting or advisory agreements with
other entities that may limit their availability to the Company. These
companies may also be competitors of Progenics. Several members of the SABs
have, from time to time, devoted significant time and energy to the affairs of
the Company. However, no member is regularly expected to devote more than a
small portion of his time to Progenics. In general, Progenics' scientific
advisors are granted stock options in the Company and receive financial
remuneration for their services.
Cancer Scientific Advisory Board
Name Position/Affiliation
Alan N. Houghton, M.D. (Chairman) Chairman, Immunology Program,
Sloan-Kettering and Professor,
Cornell University Medical
College ("CUMC")
Angus G. Dalgleish, M.D., Ph.D. Chairman and Professor of
Medical Oncology, St. George's
Hospital, London
Samuel J. Danishefsky, Ph.D. Kettering Professor and Head,
Bioorganic Chemistry, Memorial
Sloan-Kettering Research
Institute and Professor of
Chemistry, Columbia University
David W. Golde, M.D. Physician-in-Chief, Sloan-
Kettering and Professor, CUMC
David R. Klatzmann, M.D., Ph.D. Professor of Immunology,
Pitie-Salpetriere Hospital,
Paris
Philip O. Livingston, M.D. Associate Member, Sloan-
Kettering and Associate
Professor, CUMC
John Mendelsohn, M.D. President, The University of
Texas M.D. Anderson Cancer
Center
David A. Scheinberg, M.D., Ph.D. Chief, Leukemia Service,
Sloan-Kettering and Associate
Professor, CUMC
20
Virology Scientific Advisory Board
Name Position/Affiliation
Stephen P. Goff, Ph.D. (Chairman) Professor of Biochemistry,
Columbia University
Mark Alizon, M.D., Ph.D. Director of Research, Institut
Cochin, Paris
Lawrence A. Chasin, Ph.D. Professor of Biological
Sciences, Columbia University
Leonard Chess, M.D. Professor of Medicine,
Columbia University
Wayne A. Hendrickson, Ph.D. Professor of Biochemistry,
Columbia University
Israel Lowy, M.D., Ph.D. Assistant Professor of
Medicine, Mount Sinai Medical
Center
J. Steven McDougal, M.D. Chief, Immunology Branch, CDC,
Atlanta
Luc Montagnier, M.D. Professor and Chairman of
Virology, Pasteur Institute,
Paris
Sherie L. Morrison, Ph.D. Professor of Microbiology,
UCLA
Robin A. Weiss, Ph.D. Professor and Director of
Research, ICR, Royal Cancer
Hospital, London
RISK FACTORS
The Company's business and operations entail a variety of risks and
uncertainties, including those described below.
Early Stage of Product Development; Technological Uncertainties
The Company is at an early stage of development, and the successful
commercialization of any products will require significant further research,
development, testing and/or regulatory approvals and additional investment.
Substantially all of the Company's resources have been, and for the foreseeable
future will continue to be, dedicated to the development of products for cancer
and viral diseases, most of which are still in the early stages of development
and testing. There are a number of technological challenges that the Company
must successfully address to complete most of its development efforts. In
addition, the product development programs conducted by the Company and its
collaborators are subject to the risks of failure inherent in the development
of product candidates based on new technologies. These risks include the
possibility that the technologies used by the Company will prove to be
ineffective or any or all of the Company's product candidates will prove to be
unsafe or otherwise fail to receive necessary regulatory approvals; that the
product candidates, if safe and effective, will be difficult to manufacture on
a large scale or uneconomical to market; that the proprietary rights of third
parties will preclude the Company or its collaborators from marketing the
products utilizing the Company's technologies; or that third parties will
market equivalent or superior products. To the Company's knowledge, no cancer
therapeutic vaccine and no drug designed to treat HIV infection by blocking
viral entry has been approved for marketing, and there can be no assurance that
any of the Company's products will be successfully developed. The commercial
success of the Company's products, if any, when and if approved for marketing
by the FDA, will depend upon their acceptance by the medical community and
third party payors as clinically useful, cost-effective and safe.
21
Uncertainty Associated with Preclinical and Clinical Testing
The grant of regulatory approvals for the commercial sale of any of the
Company's potential products will depend in part on the Company and/or its
collaborators successfully conducting extensive preclinical and clinical
testing to demonstrate their safety and efficacy in humans. The results of
preclinical studies by the Company and/or its collaborators may be inconclusive
and may not be indicative of results that will be obtained in human clinical
trials. There can be no assurance that any of the Company's products in the
research or preclinical development stage will yield results that would permit
or justify clinical testing. Further, there can be no assurance that any of
the Company's potential products that undergo clinical trials will have the
desired effect or will not have undesirable side effects or other
characteristics that may prevent them from being approved or limit their
commercial use if approved. In addition, results attained in early human
clinical trials relating to the products under development by the Company may
not be indicative of results that will be obtained in later clinical trials. As
results of particular preclinical studies and clinical trials are received, the
Company and/ or its collaborators may abandon projects which they might
otherwise have believed to be promising, some of which may be described herein.
In addition, the Company, its collaborators or the FDA or other regulatory
agencies may suspend or terminate clinical trials at any time if the subjects
or patients participating in such trials are being exposed to unacceptable
health risks. Clinical testing is very expensive and can involve many years.
The failure to adequately demonstrate the safety and efficacy of a therapeutic
product under development by the Company and/or its collaborators could delay
or prevent regulatory approval of the product and would have a material adverse
effect on the Company.
The rate of completion of the human clinical trials involving the
Company's product candidates, if permitted, will be dependent upon, among other
factors, the rate of patient enrollment. Delays in planned patient enrollment
might result in increased costs and delays, which could have a material adverse
effect on the Company. The Company's most advanced product candidates are
intended for treating patients with relatively early stage cancer and are
designed to delay or prevent recurrence of disease. As a consequence, clinical
trials involving these product candidates are likely to take longer to complete
than clinical trials involving other types of therapeutics.
The Company has limited experience in conducting clinical trials. In
certain circumstances the Company and its corporate collaborators rely, in
part, on academic institutions and on clinical research organizations to
conduct and monitor certain clinical trials. There can be no assurance that
such entities will conduct the clinical trials successfully. In addition,
certain clinical trials for the Company's products will be conducted by
government-sponsored agencies. Because the conduct of such trials will be
dependent on government participation and funding, the Company will have less
control over such trials than if the Company were the sole sponsor thereof. As
a result, there can be no assurance that these trials will commence or be
completed as planned. Failure to commence or complete any of its planned
clinical trials could have a material adverse effect on the Company's business,
financial condition or results of operations.
22
Risks Relating to Corporate Collaborations
Progenics' business strategy includes entering into collaborations or
marketing and distribution arrangements with corporate partners, primarily
pharmaceutical companies, for the development (including clinical development),
commercialization, marketing and distribution of certain of its product
candidates. The Company has entered into a significant corporate collaboration
with BMS covering the Company's most advanced product candidates to date.
Pursuant to its agreements with BMS, Progenics has granted to BMS the exclusive
worldwide license to manufacture, use and sell GMK and MGV and any other
products to which Progenics has rights that include the GM2 or GD2 ganglioside
antigens for the treatment or prevention of human cancer. The Company has also
entered into a corporate collaboration with Roche pursuant to which the Company
has granted to Roche an exclusive worldwide license to the Company's HIV co-
receptor technology in a defined field. As a result of the governing
agreements, the Company is dependent on BMS and Roche to fund testing, to make
certain regulatory filings and to manufacture and market existing and any
future products resulting from the collaborations. There can be no assurance
that the arrangements with BMS, Roche or any other collaborator will be
scientifically, clinically or commercially successful. In the event that any
such arrangement is terminated, such action could adversely affect the
Company's ability to develop, commercialize, market and distribute certain of
its product candidates. The Company's product candidates will only generate
milestone payments and royalties after significant preclinical and/or clinical
development, the procurement of requisite regulatory approvals, the
establishment of manufacturing capabilities and/or the successful marketing of
the product.
The amount and timing of resources dedicated by BMS, Roche or any other
collaborator to their respective collaborations with the Company is not within
the Company's control. If any such collaborator breaches or terminates its
agreements with the Company, or fails to conduct its collaborative activities
in a timely manner, the commercialization of product candidates may be
adversely affected. There can be no assurance that the Company's collaborative
partners will not change their strategic focus or pursue alternative
technologies or develop alternative products either on their own or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases targeted by these collaborative
programs. For example, both BMS and Roche manufacture and sell products that
may compete against the products that may result from their respective
collaborations. The Company's business also will be affected by the
effectiveness of its corporate partners in marketing any successfully developed
products. A reduction in sales efforts or a discontinuance of sales of any
developed products by any collaborative partner could result in reduced
revenues and have a material adverse effect on the Company's business,
financial position and results of operations.
There can be no assurance that the Company's existing strategic alliances
will continue or be successful or that the Company will receive any further
research funding or milestone or royalty payments. If the Company's partners do
not develop products under these collaborations, there can be no assurance that
the Company would be able to do so. Disputes may arise between the Company and
its collaborators as to a variety of matters, including ownership of
intellectual property rights. These disputes may be both expensive and time-
consuming and may result in delays in the development and commercialization of
certain product candidates. There can be no assurance that the Company will be
able to negotiate any additional collaborative or marketing and distribution
arrangements, that such arrangements will be available to the Company on
acceptable terms or that any such relationships, if established, will be
scientifically or commercially successful. Furthermore, any additional
collaborations would likely be subject to some or all of the risks described
above with respect to the Company's current collaborations.
History of Operating Losses and Accumulated Deficit; No Product Revenue and
Uncertainty of Future Profitability
The Company has incurred substantial losses in each year since its
inception. As of December 31, 1997, the Company had an accumulated deficit of
approximately $18.7 million. Such losses have resulted principally from costs
incurred in the Company's research and development programs and general and
administrative costs associated with the Company's development. The Company
has derived no revenues from product sales (other than for research purposes)
or royalties and no product sales (other than sales of research reagents) or
royalties are likely for a number of years, if ever. The Company expects to
incur additional operating losses in the future which are expected to increase
significantly as the Company expands development and clinical trial efforts.
The Company's ability to achieve long-term profitability is dependent in part
on obtaining regulatory approvals for products and entering into agreements for
commercialization of such products. There can be no assurance that such
regulatory approvals will be obtained or such agreements will be entered into.
The failure to obtain any such necessary regulatory approvals or to enter into
any such necessary agreements could delay or prevent the Company from achieving
profitability and would have a material adverse effect on the business,
financial position and results of operations of the Company. Further, there
can be no assurance that the Company's operations will become profitable even
if any product under development by the Company or any collaborators is
commercialized.
23
Need for Additional Financing and Uncertain Access to Capital Funding
Progenics' current development projects require substantial capital. The
Company does not have committed external sources of funding for certain of its
drug discovery and development projects. The Company may require substantial
additional funds to conduct development activities, preclinical studies,
clinical trials and other activities relating to the successful
commercialization of any potential products. There can be no assurance,
however, that the Company will be able to obtain additional funds on acceptable
terms, if at all. If adequate funds are not available, the Company may be
required to delay, reduce the scope of or eliminate one or more of its
programs; obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or license the rights to such
technologies, product candidates or products on terms that are less favorable
to the Company than might otherwise be available. If the Company raises
additional funds by issuing equity securities, further dilution to stockholders
may result and new investors could have rights superior to existing
stockholders.
Limited Manufacturing Capabilities
In order to successfully commercialize its product candidates, Progenics
and/or its collaborators must be able to manufacture its products in commercial
quantities, in compliance with regulatory requirements, at acceptable costs and
in a timely manner. The manufacture of the types of biopharmaceutical products
being developed by the Company presents several risks and difficulties. The
manufacture of some or all of the Company's product candidates can be complex,
difficult to accomplish even in small quantities, difficult to scale-up when
large scale production is required and subject to delays, inefficiencies and
poor or low yields of quality products. Although Progenics has constructed two
pilot-scale manufacturing facilities, one for the production of vaccines and
one for the production of recombinant proteins, which it believes will be
sufficient to meet the Company's initial needs for clinical trials, these
facilities may be insufficient for all of its late-stage clinical trials and
for its commercial-scale manufacturing requirements, if any. Furthermore,
there can be no assurance that the Company's collaboration with GTC will result
in a cost-effective means for the production of PRO 542. Accordingly, the
Company may be required to expand its manufacturing staff and facilities and
obtain new facilities or to contract with corporate collaborators or other
third parties to assist with production. Manufacture of some of Progenics'
initial products for commercialization may require third party contract
manufacturers at a significant cost to the Company. In employing third party
manufacturers, Progenics will not control all aspects of the manufacturing
process. There can be no assurance that the Company will be able to obtain
from third party manufacturers adequate supplies in a timely fashion for
commercialization, or that commercial quantities of any such products, if
approved for marketing, will be available from contract manufacturers at
acceptable costs. In the event the Company decides to establish a full-scale
commercial manufacturing facility, the Company will require substantial
additional funds and will be required to hire and train significant numbers of
employees and comply with the extensive regulations applicable to such a
facility. There is no assurance that Progenics will be able to develop a
current Good Manufacturing Practices ("cGMP") manufacturing facility sufficient
for all clinical trials or commercial-scale manufacturing. The cost of
manufacturing certain products may make them prohibitively expensive.
24
Availability of Materials
There can be no assurance that sufficient quantities of raw materials will
be available to support continued research, development or commercial
manufacture of any of the Company's planned products. The Company currently
obtains supplies of critical materials used in production of GMK and MGV from
single sources. Specifically, commercialization of the Company's GMK and MGV
cancer vaccine candidates requires a certain adjuvant from Aquila. The Company
has entered into a license and supply agreement with Aquila pursuant to which
Aquila agreed to supply the Company with all of its requirements for the QS-21
adjuvant for use in certain ganglioside-based cancer vaccines, including GMK
and MGV. In connection with the Company's collaboration with BMS, Progenics
granted to BMS a non-exclusive sublicense under the Company's license and
supply agreement with Aquila, and BMS entered into a supply agreement with
Aquila. There can be no assurance that Aquila will be able to supply
sufficient quantities of QS-21 to the Company or BMS or that the Company or BMS
will have the right or capability to manufacture sufficient quantities of QS-21
to meet its needs if Aquila is unable or unwilling to do so. In addition, the
Company currently relies on one source of pharmaceutical grade KLH, which is
one of the components of the Company's cancer vaccines. There can be no
assurance that the Company will not be subject to delays or disruption in the
supply of this component. Any delay or disruption in the availability of raw
materials could have a material adverse effect on the Company's business,
financial condition or results of operations.
Government Regulation; No Assurance of Regulatory Approval
The Company and its products are subject to comprehensive regulation by
the FDA in the United States 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,
record keeping, advertising, and promotion of the Company's products. Among
other requirements, FDA approval of the Company's 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 United States.
The process of obtaining FDA approvals can be costly, time consuming, and
subject to unanticipated delays and the Company has had only limited experience
in filing and pursuing applications necessary to gain regulatory approvals.
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The foreign regulatory approval
process may include all of the risks associated with obtaining FDA approval set
forth above, and there can be no assurance that foreign regulatory approvals
will be obtained on a timely basis, if at all. There can be no assurance that
the Company or its partners will file for regulatory approvals or receive
necessary approvals to commercialize product candidates in any market. Delays
in receipt of or failure to receive regulatory approvals, or the loss of
previously received approvals, would have a material adverse effect on the
Company's business, financial condition and results of operations.
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 post-approval marketing activities may result in various adverse
consequences.
Dependence On Third Parties
The Company relies heavily on third parties (in addition to its reliance
on corporate collaborators) for a variety of functions, including certain
functions relating to research and development, manufacturing, clinical trials
management and regulatory affairs. As of December 31, 1997, the Company had
only 32 full-time employees. The Company is party to several collaborative
agreements which place substantial responsibility on third parties for clinical
development of the Company's products. The Company also in-licenses technology
from medical and academic institutions in order to minimize investments in
early research and enters into collaborative arrangements with certain of these
entities with respect to clinical trials of product candidates.
25
Except for payments made to the Company under its collaboration with BMS,
most of the Company's revenues to date have been derived from federal research
grants. The government's obligation to make payments under these grants is
subject to appropriation by the United States Congress for funding in each
year. Moreover, it is possible that Congress or the government agencies that
administer these government research programs will determine to scale back
these programs or terminate them or that the government will award future
grants to competitors of the Company instead of the Company. In addition,
there can be no assurances that the Company will be awarded any such grants in
the future or that any amounts derived therefrom will not be less than those
received to date. Certain of the Company's clinical trials are expected to be
partially paid for by government funds. Any future reduction in the funding
the Company receives either from federal research grants or with respect to
clinical trials could adversely affect the Company's business, financial
condition and results of operations.
There can be no assurance that Progenics will be able to establish and
maintain any of the relationships described above on terms acceptable to the
Company, that the Company can enter into these arrangements without undue
delays or expenditures, or that these arrangements will allow the Company to
compete successfully against other companies.
Lack of Sales and Marketing Experience
If FDA and other approvals are obtained with respect to any of its
products, Progenics expects to market and sell its products through
distribution, co-marketing, co-promotion or licensing arrangements with third
parties. The Company's agreement with BMS and Roche grant these collaborators
the exclusive right to market any products resulting from their respective
collaborations. Progenics has no experience in sales, marketing or
distribution. To the extent that the Company enters into distribution, co-
marketing, co-promotion or licensing arrangements for the marketing and sale of
its products, any revenues received by the Company will be dependent on the
efforts of third parties. The Company would not control the amount and timing
of marketing resources such third parties would devote to the Company's
products. If any of such parties were to breach or terminate its agreement
with the Company or otherwise fail to conduct marketing activities successfully
and in a timely manner, the commercialization of product candidates would be
delayed or terminated, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, if the Company markets products directly, significant additional
expenditures and management resources would be required to develop an internal
sales force. There can be no assurance that the Company will be able to
establish a successful sales force, should it choose to do so.
Dependence on and Uncertainty of Protection of Patents and Proprietary Rights
The Company's success is dependent in part on obtaining, maintaining and
enforcing patent and other proprietary rights. The Company is required to make
substantial cash payments and achieve certain milestones and requirements,
including, without limitation, filing INDs, obtaining product approvals and
introducing products, to maintain its rights under license granted to the
Company, including its licenses from Sloan-Kettering and Columbia University.
There is no assurance that the Company will be able to make required cash
payments when due or achieve the milestones and requirements in order to
maintain its rights under these licenses. Termination of any of such licenses
could result in the Company being unable to continue development of its product
candidates and production and marketing of approved products, if any, and
consequently could have a material adverse effect on the business, financial
condition and results of operations of the Company.
There can be no assurance that patent applications owned by or licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology. Although a
patent has a statutory presumption of validity in the United States, the
issuance of a patent is not conclusive as to such validity or as to the
enforceable scope of the claims of the patent. There can be no assurance that
the Company's issued patents or any patents subsequently issued to or licensed
by the Company will not be successfully challenged in the future. The validity
or enforceability of a patent after its issuance by the patent office can be
challenged in litigation. The cost of litigation to uphold the validity of
patents and to prevent infringement can be substantial. If the outcome of the
litigation is adverse to the owner of the patent, third parties may then be
able to use the invention covered by the patent without payment. There can be
no assurance that the Company's patents will not be infringed or successfully
avoided through design innovation.
26
The Company may not retain all rights to developments, inventions, patents
and other proprietary information resulting from its collaborative
arrangements, whether in effect as of the date hereof or which may be entered
into at some future time with third parties. As a result, the Company may be
required to license such developments, inventions, patents or other proprietary
information from such third parties, possibly at significant cost to the
Company. The Company's failure to obtain any such licenses could have a
material adverse effect on the business, financial condition and results of
operations of the Company. ADARC is a co-owner with the Company of one of the
patent applications relating to the HIV co-receptor CCR5 and upon which the
Company's HIV co-receptor/fusion program is based. Unless the Company acquires
from ADARC an exclusive license to ADARC's rights in this patent application,
there can be no assurance that ADARC will not license such patent to a
competitor of the Company.
There may be patent applications and issued patents belonging to
competitors that may require the Company to alter its products, pay licensing
fees or cease certain activities. If the Company's products conflict with
patents that have been or may be granted to competitors, universities or
others, such other persons could bring legal actions against the Company
claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If any such actions are successful, in addition to any
potential liability for damages, the Company could be required to obtain a
license in order to continue to manufacture or market the affected products.
There can be no assurance that the Company would prevail in any such action or
that any license required under any such patent would be made available on
acceptable terms or at all. There is significant litigation in the
biopharmaceutical industry regarding patent and other intellectual property
rights. Any litigation involving the Company could require substantial
resources and have a material adverse effect on the Company's business,
financial position and results of operations.
Progenics has also filed a number of U.S. and foreign patent applications
(one of which is owned jointly with ADARC) relating to the discovery of the HIV
co-receptor CCR5. In addition to the risks described above, the Company is
aware that other groups have claimed discoveries similar to that covered by the
Company's patent applications. These groups may have made their discoveries
prior to the discoveries covered by the Company's patent applications and may
have filed their applications prior to the Company's patent applications. The
Company does not expect to know for several years the relative strength of its
patent position as compared to these other groups.
In addition to the patents, patent applications, licenses and intellectual
property processes described above, the Company also relies on unpatented
technology, trade secrets and information. No assurance can be given that
others will not independently develop substantially equivalent information and
techniques or otherwise gain access to the Company's technology or disclose
such technology, or that the Company can meaningfully protect its rights in
such unpatented technology, trade secrets and information. The Company requires
each of its employees, consultants and advisors to execute a confidentiality
agreement at the commencement of an employment or consulting relationship with
the Company. The agreements generally provide that all inventions conceived by
the individual in the course of employment or in providing services to the
Company and all confidential information developed by, or made known to, the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not disclosed to third
parties except in limited specified circumstances. There can be no assurance
however, that these agreements will provide meaningful protection for the
Company's information in the event of unauthorized use or disclosure of such
confidential information.
Dependence Upon Key Personnel; Attraction and Retention of Personnel
Progenics is dependent upon certain key management and scientific
personnel. In particular, the loss of Dr. Maddon could have a materially
adverse effect on Progenics, unless a qualified replacement could be found.
Progenics maintains a key man life insurance policy on Dr. Maddon in the amount
of $2.5 million. The Company's employment agreement with Dr. Maddon expires in
December 1998, and there can be no assurance that it will be renewed by the
parties thereto.
27
Competition for qualified employees among companies in the
biopharmaceutical industry is intense. Progenics' future success depends upon
its ability to attract, retain and motivate highly skilled employees. In order
to successfully commercialize its products, the Company may be required to
substantially expand its personnel, particularly in the areas of manufacturing,
clinical trials management, regulatory affairs, business development and
marketing. There can be no assurance that the Company will be successful in
hiring or retaining qualified personnel.
Uncertainty Related to Health Care Reform Measures and Reimbursement
In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included
measures that would limit or eliminate payments for certain medical procedures
and treatments or subject the pricing of pharmaceuticals to government control.
Significant changes in the health care system in the United States or elsewhere
might have a substantial impact on the manner in which the Company conducts its
business. Such changes also could have a material adverse effect on the
Company's ability to raise capital. Furthermore, the Company's ability to
commercialize products may be adversely affected to the extent that such
proposals have a material adverse effect on the business, financial condition
and profitability of other companies that are collaborators or prospective
collaborators of the Company.
The Company's and its collaborators' success in generating revenue from
sales of products may depend, in part, on the extent to which reimbursement for
the costs of such products will be available from third-party payors, such as
government health administration authorities, private health insurers and
health maintenance organizations ("HMOs"). Significant uncertainty exists as
to the reimbursement status of newly-approved health care products. In
addition, the trend towards managed health care in the United States, as well
as legislative proposals to reduce government insurance programs, may result in
lower prices for products and affect the market for products. If the Company
or one or more of its collaborators succeeds in bringing one or more of
Progenics' products to market, there can be no assurance that adequate third-
party payors will establish and maintain price levels sufficient for
realization of an appropriate return on the Company's investment in product
development. Third-party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement of new
products approved for marketing by the FDA. If adequate coverage and
reimbursement levels are not provided by government and third-party payors for
uses of the Company's products, the market acceptance of such products would be
adversely affected.
Risk of Product Liability; Limited Availability of Insurance
The Company's business exposes it to potential product liability risks
which are inherent in the testing, manufacturing, marketing and sale of human
vaccine and therapeutic products, and there can be no assurance that the
Company will be able to avoid significant product liability exposure. Product
liability insurance for the biopharmaceutical industry is generally expensive,
if available at all. The Company has obtained product liability insurance
coverage in the amount of $5 million per occurrence, subject to a $5 million
aggregate limitation. However, there can be no assurance that the Company's
present insurance coverage is now or will continue to be adequate as the
Company further develops products. In addition, certain of the Company's
license and collaborative agreements require the Company to obtain product
liability insurance, and it is possible that license and collaborative
agreements which the Company may enter into in the future may also include such
a requirement. There can be no assurance that in the future adequate insurance
coverage will be available in sufficient amounts or at a reasonable cost, or
that a product liability claim or recall would not have a material adverse
effect on the Company.
28
Hazardous Materials; Environmental Matters
The Company's research and development work and manufacturing processes
involve the use of hazardous, controlled and radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company maintains safety procedures for
handling and disposing of such materials that it believes comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result, and any such liability could exceed the resources of the
Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations, there can
be no assurance that the Company will not be required to incur significant
costs to comply with environmental laws and regulations in the future, or that
the operations, business or assets of the Company will not be materially or
adversely affected by current or future environmental laws or regulations.
Control by Existing Stockholders; Anti-Takeover Provisions
Certain stockholders of the Company, including Dr. Maddon and stockholders
affiliated with Tudor Investment Corporation and Weiss, Peck & Greer,
beneficially own or control a substantial portion of the outstanding shares of
the Company's Common Stock (the "Common Stock") and therefore may have the
ability, acting together, to elect all of the Company's directors, to determine
the outcome of most corporate actions requiring stockholder approval and
otherwise control the business of the Company. Such control could have the
effect of delaying or preventing a change in control of the Company and
consequently adversely affect the market price of the Common Stock. In
addition, the Company's Board of Directors is authorized to issue from time to
time shares of Preferred Stock, without further stockholder authorization, in
one or more designated series or classes. The issuance of Preferred Stock, as
well as certain provisions in certain of the Company's stock options which
provide for acceleration of exercisability upon a change of control of the
Company and certain provisions of the Delaware General Corporation Law (Section
203, in particular), could make the takeover of the Company or the removal of
the Company's management more difficult, discourage hostile bids for control of
the Company in which stockholders may receive a premium for their shares of
Common Stock or otherwise dilute the rights of holders of Common Stock and
depress the market price of the Common Stock.
Future Sales of Common Stock; Registration Rights; Possible Adverse Effect on
Future Market Price
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding options and warrants will
become eligible for future sale in the public market at prescribed times.
Sales of substantial numbers of shares of Common Stock in the public market
could adversely affect prevailing market prices. Commencing November 19, 1998,
certain stockholders of the Company are entitled to certain rights with respect
to the registration of such shares of Common Stock for offer or sale to the
public. The Company plans to file a Form S-8 registration statement
registering shares issuable pursuant to the Company's stock option plans. Any
sales by existing shareholders or holders of options or warrants may have an
adverse effect on the Company's ability to raise needed capital and may
adversely affect the market price of the Common Stock.
Item 2. Properties
Progenics leases approximately 24,000 square feet of laboratory,
manufacturing and office space in Tarrytown, New York. The Company leases this
space under an operating lease which terminates in December 2000. Progenics
has two pilot production facilities within its leased facilities for the
manufacture of products for clinical trials. The Company believes that its
current facilities are adequate for its current needs.
29
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
In October 1997 the Company sought and received from its stockholders
approval of an amendment to the Company's 1996 Stock Incentive Plan (the
"Plan") increasing the number of shares of Common Stock issuable pursuant to
the Plan from 750,000 shares to 1,050,000 shares. Approval was obtained by
written consent. Stockholders holding 1,516,223 shares (62%) of the Common
Stock, 1,380,689 shares (80%) of the Company's Series A Preferred Stock,
1,188,753 shares (80%) of the Company's Series B Preferred Stock and 737,250
shares (71%) of the Company's Series C Preferred Stock consented to the
amendment.
30
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PGNX." Shares of the Company's Common Stock were first offered to
the public on November 19, 1997 at a price to the public of $8.00 per share.
The following table sets forth, for the periods indicated, the high and low
sales price per share of the Common Stock, as reported on the Nasdaq National
Market, since November 19, 1997. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
1997: High Low
Fourth quarter (from November 19) $15 5/16 $8
1998:
First quarter (through March 24) $22 5/8 $13
On March 24, 1998, the last sale price for the Common Stock as reported by
Nasdaq was $20.50. There were approximately 211 holders of record of the
Company's Common Stock as of March 24, 1998.
Dividends
The Company has not paid any cash dividends since its inception and
presently anticipates that all earnings, if any, will be retained for
development of the Company's business and that no cash dividends on its Common
Stock will be declared in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors.
Recent Sales of Unregistered Securities
During the year ended December 31, 1997, the Company issued securities to
a limited number of persons, as described below, in transactions not registered
under the Securities Act of 1933, as amended (the "Securities Act"). Each of
these transactions was effected prior to the Company's initial public offering
in November 1997. No underwriter or underwriting discounts or commissions were
involved. There was no public offering in any such transaction, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof based on
the private nature of the transactions and the sophistication of the
purchasers, all of whom had access to information concerning the Company and
acquired the securities for investment and not with a view to the distribution
thereof.
In July 1997, the Company issued 120,000 shares of Common Stock to one
entity as consideration in part for such entity consenting to certain
agreements entered into by the Company with another entity.
In March, June and July of 1997, the Company issued to two entities
warrants to purchase in the aggregate 70,000 shares of Common Stock. The
exercise price for the warrants was dependent on the occurrence of various
corporate transactions within specified time parameters. As a result of the
completion of the Company's initial public offering in November 1997, the
exercise price for the warrants has been fixed at $4.00 per share. The
warrants were issued in consideration for the provision by the warrantholders
of a guarantee of the Company's obligations under a loan extended by a
commercial lender.
In January 1997, one person exercised options granted to such person in
April 1989 to purchase 27,000 shares of Common Stock at an exercise price of
$1.33 per share.
31
Use of Proceeds from Registered Securities
On November 19, 1997, the Securities and Exchange Commission (the
"Commission") declared effective the Company's Registration Statement (No. 333-
13627) on Form S-1, as then amended, relating to the Company's initial public
offering of 2,300,000 shares of Common Stock, par value $.0013 per share,
(300,000 shares of which were issued upon exercise of an over-allotment option
granted by the Company to the underwriters). The managing underwriters for the
offering were CIBC Oppenheimer Corp., BancAmerica Robertson Stephens and Vector
Securities International, Inc. (the "Underwriters".) In connection with the
initial public offering, the Company registered the Common Stock under the
Securities Exchange Act of 1934, as amended.
The public offering terminated upon the sale on the effective date of the
Registration Statement of all of the 2,300,000 shares of Common Stock
registered for sale. The aggregate offering price of securities sold was
$18,400,000. All 2,300,000 shares of Common Stock sold were sold for the
account of the Company.
From the effective date of the Registration Statement through December 31,
1997, the Company incurred the following expenses in connection with the
issuance and distribution of the Common Stock registered:
Underwriting discounts and commissions $1,288,000
The net offering proceeds to the Company after deducting the foregoing
expenses and before deducting the expenses discussed below were $17,112,000.
The foregoing excludes other expenses (legal and accounting fees, printing
and engraving expenses and miscellaneous) of approximately $1,097,000 incurred
prior to November 19, 1997 and subsequent to December 31, 1997 in connection
with the offering and sale of the Common Stock registered. Other than the
amounts set forth for underwriting discounts and commissions, the foregoing
represent a reasonable estimate of expenses.
The Company did not make, in connection with the offering and sale of the
Common Stock registered, any direct or indirect payments to: directors,
officers or general partners of the Company or, to the Company's knowledge,
their associates; persons owning 10% or more of any class of equity securities
of the Company; or affiliates of the issuer.
From November 19, 1997 until December 31, 1997, and through the date of
this report, that portion of the net proceeds that has not been used to pay
expenses of the offering has been applied to temporary investments as follows:
At March 24, 1998, $8,860,000 of the net proceeds were invested in
corporate debt securities, and the balance was invested in money market funds
pending the purchase of corporate debt securities.
32
Item 6.
Selected Financial Data
The selected financial data presented below as of December 31, 1996 and
1997 and for each of the years in the three year period ended December 31, 1997
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, 1993, 1994 and 1995 and for each of the
years in the two-year period ended December 31, 1994 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,
1993 1994 1995 1996 1997
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research and development $ $ $ 200 $ 318 $ 14,591
Research grants 84 504 525 203 665
Product sales 50 52 50 98 57
Interest income 53 108 46 106 301
Total revenues 187 664 821 725 15,614
EXPENSES:
Research and development 1,547 2,859 3,852 3,700 7,364
General and administrative 748 878 1,094 2,808 2,222
Interest expense 38 50 87 51 312
Depreciation and amortization 249 289 291 309 319
Total expenses 2,582 4,076 5,324 6,868 10,217
Operating (loss) income (2,395) (3,412) (4,503) (6,143) 5,397
Income taxes 258
Net (loss) income $ (2,395) $ (3,412) $ (4,503) $ (6,143) $ 5,139
Per share amounts on net (loss)
income (1):
Basic $ (1.06) $ (1.52) $ (1.99) $ (2.68) $ 1.64
Diluted $ (1.06) $ (1.52) $ (1.99) $ (2.68) $ 0.66
(1) For all periods presented above, the Company adopted the provisions of
Financial Accounting Standard No. 128 "Earnings per Share". (See notes to
the Financial Statements)
DECEMBER 31
1993 1994 1995 1996 1997
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable Securities $ 2,137 $ 2,275 $ 559 $ 647 $ 23,624
Working capital 1,882 2,019 19 (1,109) 20,562
Total assets 2,858 3,489 1,736 1,663 24,543
Capital lease obligations and
deferred Lease liability, 75 235 213 156 141
long-term portion
Total stockholders' equity
(deficit) 2,523 2,827 852 (385) 23,034
__________________________
33
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Progenics is a biopharmaceutical company focusing on the development and
commercialization of innovative products for the treatment and prevention of
cancer and viral diseases. The Company commenced principal operations in late
1988 and since that time has been engaged primarily in organizational efforts,
including recruitment of scientific and management personnel, research and
development efforts, development of its manufacturing capabilities,
establishment of corporate collaborations and raising capital. In order to
commercialize the principal products that the Company has under development,
the Company will need to address a number of technological challenges and
comply with comprehensive regulatory requirements. Accordingly, it is not
possible to predict the amount of funds that will be required or the length of
time that will pass before the Company receives revenues from sales of any of
its products. To date, product sales have consisted solely of limited revenues
from the sale of research reagents. The Company expects that sales of research
reagents in the future will not significantly increase over current levels.
The Company's other sources of revenues through December 31, 1997 have been
payments received under its collaboration agreements, research grants related
to the Company's HIV programs and interest income.
To date, a majority of the Company's expenditures have been for research
and development activities. The Company expects that its research and
development expenses will increase significantly as its programs progress and
the Company makes filings for related regulatory approvals. The Company has
recurring losses and had an accumulated deficit of $18,661,000 at December 31,
1997. The Company has financed its operations primarily through the private
sale and issuance of equity securities, a line of credit that has since been
repaid and terminated, payments received under its collaboration with BMS
beginning in July 1997 and the proceeds of the Company's initial public
offering in November 1997. The Company may require additional funds to
complete the development of its products, to fund the cost of clinical trials,
and to fund operating losses which are expected to continue for the foreseeable
future. The Company does not expect its products under development to be
commercialized in the near future.
In July 1997, Progenics entered into a Joint Development and Master
License Agreement (the BMS Agreements). These agreements provide for BMS to
fund further development, clinical trials and regulatory filings related to GMK
and MGV. Consequently, Progenics does not expect to make significant
additional expenditures relating to these product candidates for so long as
these agreements remain in force. In connection with the establishment of this
collaboration, BMS paid to the Company in July 1997 an aggregate of
approximately $13.3 million, representing reimbursement for expenses previously
incurred by Progenics in the development of GMK and MGV, licensing fees and
reimbursement of clinical development costs for the period April 15, 1997 to
September 30, 1997. In connection with payments made by BMS to the Company
under the BMS License Agreement, the Company made certain payments to licensors
and incurred other related expenses. See "Business-- General Overview-- BMS
Collaboration."
Results of Operations
Years Ended December 31, 1996 and 1997
Contract research and development revenue increased from $318,000 in 1996
to $14,591,000 in 1997 as the Company received a licensing fee and
reimbursement of clinical development costs in connection with the BMS License
Agreement executed in July 1997. Revenues from research grants increased from
$203,000 in 1996 to $665,000 in 1997. The increase resulted from the funding
of a greater number of grants in 1997. Sales of research reagents decreased
from $98,000 in 1996 to $57,000 in 1997 resulting from decreased orders for
such reagents during 1997. Interest income increased from $106,000 in 1996 to
$301,000 in 1997 due to the increase in cash available for investing as the
Company received funding from the BMS License Agreement in July 1997 and its
initial public offering in November 1997.
34
Research and development expenses increased from $3,700,000 in 1996 to
$7,364,000 in 1997. The increase was principally due to payments to licensors
in connection with the BMS License Agreement, additional costs of manufacturing
GMK in 1997 for the Company's Phase III clinical trials and compensation
expense related to the issuance of stock options to employees and consultants.
General and administrative expenses decreased from $2,808,000 in 1996 to
$2,222,000 in 1997. The decrease was principally due the reduction of
professional fees and printing costs which were associated with the Company's
unsuccessful efforts to sell Common Stock in a registered public offering in
1996. Interest expense increased from $51,000 in 1996 to $312,000 in 1997 as a
result of borrowings commencing in March 1997 under a line of credit.
Depreciation and amortization remained relatively unchanged from $309,000 in
1996 to $319,000 in 1997.
In 1997, the Company recognized a provision for income taxes of $258,000
which was based upon prevailing federal and state tax rates reduced by the
utilization of net operating loss carryforwards to the extent permitted by the
alternative minimum tax rules.
The Company's net loss in 1996 was $6,143,000 compared to net income of
$5,139,000 in 1997.
Years Ended December 31, 1995 and 1996
Contract research and development revenue increased from $200,000 in 1995
to $318,000 in 1996. Such increase resulted from a full year of operations
under the Department of Defense contract which commenced in June 1995.
Revenues from research grants decreased from $525,000 in 1995 to $203,000 in
1996. The decrease for 1996 resulted from a fewer number of grants in that
year. Sales of research reagents increased from $50,000 in 1995 to $98,000 in
1996 as orders increased due to the addition of Intracel Corporation
("Intracel") as a second seller of such reagents. Interest income increased
from $46,000 in 1995 to $106,000 in 1996 due to the investment of the proceeds
from the private placement of the Company's Series C Preferred Stock which
occurred in late 1995 and early 1996.
Although the Company shifted certain resources from its HIV programs into
its cancer programs, research and development expenses remained relatively
constant in 1995 and 1996.
General and administrative expenses increased from $1,094,000 in 1995 to
$2,808,000 in 1996. The increase in 1996 was principally due to additional
professional services and printing costs associated with the Company's
unsuccessful efforts to sell Common Stock in a registered public offering.
Interest expense decreased from $87,000 in 1995 to $51,000 in 1996 resulting
from repayment of a line of credit. Depreciation and amortization remained
relatively unchanged from $291,000 in 1995 to $309,000 in 1996. The Company's
net loss in 1995 was $4,503,000 compared to a net loss in 1996 of $6,143,000.
Liquidity and Capital Resources
The Company had funded its operations since inception primarily through
private placements of equity securities, which provided aggregate cash proceeds
of $22,817,000 (including loans that were subsequently converted into equity
securities) and payments received under its collaboration with BMS. In
November 1997, the Company received net cash proceeds of approximately
$16,015,000 in connection with its public offering. Through December 31, 1997,
the Company had also received cash proceeds of $2,135,000 from research grants,
$948,000 from interest on investments and $445,000 from the sale of research
reagents. Through December 31, 1997, the Company had financed $1,331,000 of
equipment purchases through capitalized leases and a promissory note.
During the fourth quarter of 1995 and the first quarter of 1996, the
Company raised $897,000 and $4,777,000 in net proceeds from the sale of
approximately 44,900 units and 241,203 units, respectively, in a private
placement of shares of the Company's Series C Preferred Stock in a unit
offering. Each $20.00 unit ("Series C Unit") consisted of four shares of
Series C Preferred Stock and one warrant entitling the holder to purchase one
share of Series C Preferred Stock for $5.00 any time within five years of the
date of issuance ("Series C Warrant"). In November 1997, all outstanding
shares of preferred stock of the Company were converted into shares of Common
Stock in connection with the Company's initial public offering. In addition,
during December 1995, a note payable in the aggregate principal amount of
$1,200,000, plus accrued and unpaid interest of $24,000 was converted into
approximately 61,200 Series C Units. At December 31, 1997, there were 347,249
Series C Warrants outstanding which if exercised in full would result in
$1,736,000 of net proceeds to the Company and the issuance of 260,455 shares of
Common Stock.
35
In March 1997, the Company entered into a credit agreement with Chase
Capital Bank (the "Chase Loan Agreement"), which provided for borrowings of up
to $2,000,000. The Company borrowed the full amount available under this
facility in drawings made between March and June 1997. Borrowings made by the
Company had a stated interest rate of prime and were used to fund working
capital. The Company repaid all outstanding borrowings in July 1997 from
proceeds of payments received by the Company under the BMS License Agreement.
Upon such repayment, the line of credit terminated. The Company's obligations
under the Chase Loan Agreement were guaranteed by two affiliates of the
Company, and in consideration of such guarantee these affiliates were issued
between March and July 1997 warrants to purchase an aggregate of 70,000 shares
of Common Stock at an exercise price of $4.00 per share as a result of the
completion of the Company's initial public offering.
In November 1997, the Company sold 2,300,000 shares of Common Stock in its
initial public offering. After deducting underwriting discounts and
commissions and other expenses, the Company received net proceeds of
$16,015,000. The net proceeds were invested in short-term, interest bearing
investment grade securities pending further application by the Company.
At December 31, 1997, the Company had cash, cash equivalents and
marketable securities totaling $23,624,000 compared with $647,000 at December
31, 1996. The Company's facility lease was extended from May 1998 to December
1999 at a monthly rental of $54,000 and can be extended at the option of the
Company for three additional one-year terms; however, the second and third
options are subject to approval by the landlord. The Company expects to incur
during 1998 costs of approximately $500,000 for leasehold improvements and
equipment to enhance its manufacturing capabilities.
The Company believes that its present capital resources should be
sufficient to fund operations at least through the end of 1999, based on the
Company's current operating plan. No assurance can be given that there will be
no change that would consume the Company's liquid assets before such time. The
Company will require substantial funds to conduct development activities,
preclinical studies, clinical trials and other activities relating to the
commercialization of any potential products. In addition, the Company's cash
requirements may vary materially from those now planned because of results of
research and development and product testing, potential relationships with in-
licensors and collaborators, changes in the focus and direction of the
Company's 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 Company has no committed external
sources of capital and, as discussed above, expects no significant product
revenues for a number of years as it will take at least that much time to bring
the Company's products to the commercial marketing stage. The Company may seek
additional financing, such as through future offerings of equity or debt
securities or agreements with corporate partners and collaborators with respect
to the development of the Company's technology, to fund future operations.
There can be no assurance, however, that the Company will be able to obtain
additional funds on acceptable terms, if at all.
The Company is evaluating the need to modify its computer systems and
software to properly handle information and transactions relating to the year
2000. Presently the Company believes that with modifications to some existing
software, the Year 2000 issue can be mitigated. The Company plans to complete
the Year 2000 project not later than December 31, 1998, and does not expect the
cost of such modification to be material.
36
Impact of the Adoption of Recently Issued Accounting Standard
The FASB issued Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" ("SFAS 130") in June 1997. Comprehensive Income
represents the change in net assets of a business enterprise as a result of
nonowner transactions. Management does not believe that the future adoption of
SFAS 130 will have a material effect on the Company's financial position and
results of operations. The Company will adopt SFAS 130 for the year ending
December 31, 1998.
Also in June 1997, the FASB issued Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires that a business enterprise report certain information
about operating segments, products and services, geographic areas of operation,
and major customers in complete sets of financial statements and in condensed
financial statements for interim periods. Management does not believe that the
future adoption of SFAS 131 will have a material effect on the Company's
financial position and results of operations. The Company is required to adopt
this standard for the year ending December 31,1998.
In February 1998, the FASB issued Financial Accounting Standard No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits"
("SFAS 132"). SFAS 132 modifies financial statement disclosures related to
pension and other postretirement plans, and will not have an effect on the
Company's financial position or results of operations, and is effective for
periods beginning after December 15, 1997.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 1997, the Company did not hold any market risk sensitive
instruments.
Item 8. Financial Statements and Supplementary Data
PROGENICS PHARMACEUTICALS, INC.
Index to Financial Statements
Page
Report of Independent Accountants 38
Financial Statements:
Balance Sheets as of December 31, 1996 and 1997 39
Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 40
Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1995, 1996 and 1997 41
Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 42
Notes to Financial Statements 43
37
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Progenics Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of PROGENICS PHARMACEUTICALS,
INC. (the "Company") as of December 31, 1996 and 1997 and the related
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 6, 1998.
38
PROGENICS PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31,
ASSETS: 1996 1997
Current assets:
Cash and cash equivalents $ 646,664 $ 21,737,925
Accounts receivable 114,111 164,308
Other current assets 21,050 26,483
Total current assets 781,825 21,928,716
Marketable securities 1,886,200
Fixed assets, at cost, net of accumulated
depreciation and amortization 842,607 688,174
Security deposits and other assets 38,212 39,521
Total assets $ 1,662,644 $ 24,542,611
LIABILITIES and STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 1,785,844 $ 1,226,248
Income taxes payable 57,770
Capital lease obligations, current portion 105,076 82,859
Total current liabilities 1,890,920 1,366,877
Capital lease obligations 139,649 141,402
Deferred lease liability 16,735
Total liabilities 2,047,304 1,508,279
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock, $.001 par value; 20,000,000
shares authorized:
Series A Preferred Stock, convertible; 4,000,000
shares designated; shares issued and
outstanding - 2,308,000 in 1996 and none in
1997 (liquidation value, $6,055,750) 2,308
Series B Preferred Stock, convertible; 2,500,000
shares designated; shares issued and
outstanding - 1,982,830 in 1996 and none in
1997 (liquidation value, $8,650,630) 1,983
Series C Preferred Stock, convertible; 3,750,000
shares designated; shares issued and
outstanding - 1,388,996 in 1996 and none in
1997 (liquidation value, $6,944,980) 1,389
Total preferred stock 5,680
Common Stock, $.0013 par value; 40,000,000 shares
authorized; shares issued and outstanding -
2,294,675 in 1996 and 9,001,553 in 1997 2,983 11,702
Additional paid-in capital 23,862,082 43,444,701
Unearned compensation (454,952) (1,761,381)
Accumulated deficit (23,800,453) (18,661,030)
Net unrealized gain on marketable securities 340
Total stockholders' (deficit) equity (384,660) 23,034,332
Total liabilities and stockholders' (deficit)
equity $ 1,662,644 $ 24,542,611
The accompanying notes are an integral part of the financial statements.
39
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of OPERATIONS
Years Ended December 31,
1995 1996 1997
Revenues:
Contract research and development $ 200,399 $ 318,370 $ 14,591,505
Research grants 524,949 202,559 664,983
Product sales 49,752 98,049 56,531
Interest income 46,378 105,808 300,966
Total revenues 821,478 724,786 15,613,985
Expenses:
Research and development 3,853,001 3,700,204 7,364,117
General and administrative 1,093,821 2,807,668 2,221,667
Interest expense 87,279 50,706 311,522
Depreciation and amortization 290,873 308,882 319,486
Total expenses 5,324,974 6,867,460 10,216,792
Operating (loss) income (4,503,496) (6,142,674) 5,397,193
Income taxes 257,770
Net (loss) income $ (4,503,496) $ (6,142,674) $ 5,139,423
Net (loss) income per share - basic $ (1.99) $ (2.68) $ 1.64
Net (loss) income per share - diluted $ (1.99) $ (2.68) $ 0.66
The accompanying notes are an integral part of the financial statements.
40
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1995, 1996 and 1997
Net Un-
real-
ized
Gain on
Additional Market
Preferred Stock Common Stock Paid-in Unearned Accumulated Secur-
Shares Amount Shares Amount Capital Compensation Deficit ities Total
Balance at December 31, 1994 4,290,830 $ 4,291 2,249,675 $ 2,924 $16,605,286 $ (631,278) $(13,154,283) $ 2,826,940
Sale of Series C Preferred
Stock units for cash
($20.00 per unit) 179,450 179 897,070 897,249
Amortization of unearned
compensation 107,363 107,363
Conversion of note payable
and accrued interest of
$23,671 into Series C
Preferred Stock units
($20.00 per unit) 244,734 245 1,223,426 1,223,671
Issuance of Common Stock in
consideration for obtaining
a license and supply
agreement at estimated
value ($6.67 per share) 45,000 59 299,941 300,000
Net loss for the year ended
December 31, 1995 (4,503,496) (4,503,496)
Balance at December 31, 1995 4,715,014 4,715 2,294,675 2,983 19,025,723 (523,915) (17,657,779) 851,727
Issuance of compensatory
stock options 60,000 (60,000)
Sale of Series C Preferred
Stock units for cash, net of
expenses ($20.00 per unit) 964,812 965 4,776,359 4,777,324
Amortization of unearned
compensation 128,963 128,963
Net loss for the year ended
December 31, 1996 (6,142,674) (6,142,674)
Balance at December 31, 1996 5,679,826 5,680 2,294,675 2,983 23,862,082 (454,952) (23,800,453) (384,660)
Issuance of compensatory
stock options and warrants 2,634,950 (2,634,950)
Amortization of unearned
compensation 1,328,521 1,328,521
Exercise of stock options
($1.33 per share) 27,000 35 35,875 35,910
Issuance of common stock in
July in consideration for
an amendment to an
agreement ($7.50 per share) 120,000 156 899,844 900,000
Issuance of common stock in
an initial public offering
($8.00 per share),
net of expenses 2,300,000 2,990 16,011,808 16,014,798
Conversion of preferred
stock to common stock as
the result of the initial
public offering (5,679,826) (5,680) 4,259,878 5,538 142
Net income for the year
ended December 31, 1997 5,139,423 5,139,423
Net unrealized gain on
marketable securities $340 340
Balance at December 31, 1997 - $ - 9,001,553 $11,702 $43,444,701 $(1,761,381) $(18,661,030) $340 $23,034,332
Securities issued for non-cash consideration were valued based upon the Board
of Directors' estimate of fair value of the securities issued at the time the
services were rendered.
The accompanying notes are an integral part of the financial statements.
41
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31,
1995 1996 1997
Cash flows from operating activities:
Net (loss) income $ (4,503,496) $ (6,142,674) $ 5,139,423
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 290,873 308,882 319,486
Expenses incurred in connection with issuance
of common stock, stock options and warrants 431,034 128,963 1,328,521
Stock issued in consideration for amending an agreement 900,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (112,749) 30,756 (50,197)
Decrease (increase) in other current assets 49,522 (34,723) (5,433)
(Increase) decrease in security deposits and other assets (5,834) 40,906 (1,309)
Increase (decrease) in accounts payable and accrued expenses 273,399 1,270,099 (559,596)
Increase (decrease) in deferred lease liability 24,307 (4,349) (16,735)
Increase in income taxes payable 57,770
Net cash (used in) provided by operating activities (3,552,944) (4,402,140) 7,111,930
Cash flows from investing activities:
Capital expenditures (158,445) (96,672) (69,784)
Purchase of marketable securities (1,886,036)
Redemption of certificates of deposit 113,850
Net cash used in investing activities (44,595) (96,672) (1,955,820)
Cash flows from financing activities:
Proceeds from issuance of equity securities, net of offering expenses 897,249 4,777,324 16,050,708
Payment of capital lease obligations (215,652) (191,142) (115,557)
Proceeds from notes payable 1,200,000 2,000,000
Repayments of notes payable (2,000,000)
Net cash provided by financing activities 1,881,597 4,586,182 15,935,151
Net (decrease) increase in cash and cash equivalents (1,715,942) 87,370 21,091,261
Cash and cash equivalents at beginning of period 2,275,236 559,294 646,664
Cash and cash equivalents at end of period $ 559,294 $ 646,664 $ 21,737,925
Supplemental disclosure of cash flow information:
Cash paid for interest $ 90,060 $ 50,706 $ 83,655
Cash paid for income taxes 200,000
Supplemental disclosure of noncash investing and financing activities:
Increase in capital lease obligations $ 139,000 $ 89,000 $ 95,000
Conversion of debt for equity 1,224,000
The accompanying notes are an integral part of the financial statements.
42
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS
1. Organization and Business:
Progenics Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical
company focusing on the development and commercialization of innovative
products for the treatment and prevention of cancer and viral diseases,
including human immunodeficiency virus ("HIV") infection. Prior to July
1997, the Company was in the development stage. The Company was
incorporated in Delaware on December 1, 1986. The Company has no products
approved for sale by the U.S. Food and Drug Administration. In addition to
the normal risks associated with a new business venture, there can be no
assurance that the Company's research and development will be successfully
completed, that any products developed will obtain necessary government
regulatory approval or that any approved products will be commercially
viable. In addition, the Company operates in an environment of rapid change
in technology and is dependent upon the continued services of its current
employees, consultants and subcontractors.
As of December 31, 1997, the Company had cash, cash equivalents and
marketable securities of $23.6 million. The Company estimates that this
amount combined with commitments from collaborators and others to fund
future clinical development conducted by the Company, will enable it to
continue to operate beyond one year. In the future, the Company will need
to raise additional financing through public or private equity financings,
collaborative or other arrangements with corporate sources, or other sources
of financing to fund operations. There can be no assurance that such
additional financing, if at all available, can be obtained on terms
reasonable to the Company. In the event the Company is unable to raise
additional capital, operations will need to be scaled back or discontinued.
2. Summary of Significant Accounting Policies:
Revenue Recognition
The Company has derived all of its product revenue from the sale of research
reagents to four customers. Product sales revenue is recognized at the time
reagents are shipped. The reagents are products of the Company's research
and development efforts. The Company maintains no inventory of reagent and
cost of product sales is not material.
The Company has been awarded government research grants from the National
Institutes of Health (the "NIH"). The NIH grants are used to subsidize the
Company's research projects ("Projects") regarding HIV. NIH revenue is
recognized on a pro rata basis as subsidized Project costs are incurred.
Such method approximates the straight-line basis over the lives of the
Projects.
Continued
43
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
Payments from Bristol-Myers Squibb Company, Hoffmann-LaRoche and the
Department of Defense (collectively the "Collaborators") (See Note 8) for
contract research and development are used to subsidize the Company's
research and development efforts. Such amounts are recognized as revenue as
the related services are performed by the Company, provided the collection
of the resulting receivable is probable. In situations where the Company
receives payments in advance of performance of services, such amounts are
deferred and recognized as revenue as the related services are performed.
Upon the achievement of certain events certain Collaborators are required to
make defined payments to the Company. Such amounts are included in contract
research and development revenue and are recognized as revenue upon the
achievement of the event and when collection of the resulting receivable is
probable.
Interest income is recognized as earned.
For each of the three years in the period ended December 31, 1997, all of
the Company's research grant revenue and contract research and development
revenue came from the NIH and the Collaborators, respectively.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents, marketable
securities and receivables from the NIH and the Collaborators. The Company
invests its excess cash in investment grade securities issued by
corporations and governments. The Company has established guidelines that
relate to credit quality, diversification and maturity and that limit
exposure to any one issue of securities.
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. 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:
Machinery and equipment 5-7 years
Furniture and fixtures 5 years
Leasehold improvements Life of lease
Continued
44
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
Patents
As a result of research and development efforts conducted by the Company, it
has applied, or is applying, for a number of patents to protect proprietary
inventions. All costs associated with patents are expensed as incurred.
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, 1997, the Company had
invested approximately $20,787,000 in funds with two major investment
companies and held approximately $951,000 in a single commercial bank. At
December 31, 1996, the Company had invested approximately $569,000 in funds
with a major investment company and held approximately $78,000 in a single
commercial bank.
Net (loss) Income Per Share
For the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). As required by SFAS No. 128, the prior years' loss per share data
have been restated to conform to the provisions of SFAS No. 128; however,
the impact of the restatement was not material.
Basic net (loss) income per share is computed on the basis of net (loss)
income for the period divided by the weighted average number of shares of
common stock outstanding during the period. Diluted net (loss) income per
share includes, where dilutive, the number of shares issuable upon exercise
of outstanding options and warrants and the conversion of preferred stock.
Disclosures required by SFAS No. 128 have been included in Note 13.
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.
Continued
45
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates relate to fixed assets and
deferred taxes. Actual results could differ from those estimates. See also
Notes 1 and 8(c).
Stock-Based Compensation
The accompanying financial position and results of operations of the Company
have been prepared in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the financial statements in connection
with the awarding of stock option grants to employees provided that, as of
the grant date, all terms associated with the award are fixed and the fair
value of the Company's stock, as of the grant date, is equal to or less than
the amount an employee must pay to acquire the stock. The Company will
recognize compensation expense in situations where the terms of an option
grant are not fixed or where the fair value of the Company's common stock on
the grant date is greater than the amount an employee must pay to acquire
the stock.
Disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair-value-based method of accounting for stock-based
compensation, have been included in Note 9.
The fair value of options and warrants granted to non-employees for
financing, goods or services are included in the financial statements and
expensed over the life of the debt, as the goods are utilized or the
services performed, respectively.
Impact of the Future Adoption of Recently Issued Accounting Standards
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 130. "Reporting Comprehensive Income"
("SFAS 130") in June 1997. Comprehensive Income represents the change in
net assets of a business enterprise as a result of nonowner transactions.
Management does not believe that the future adoption of SFAS 130 will have a
material effect on the Company's financial position and results of
operations. The Company will adopt SFAS 130 for the year ending December
31, 1998.
Also in June 1997, the FASB issued Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires that a business enterprise report certain
information about operating segments, products and services, geographic
areas of operation, and major customers in complete sets of financial
statements and in condensed financial statements for interim periods.
Management does not believe that the future adoption of SFAS 131 will have a
material effect on the Company's financial position and results of
operations. The Company is required to adopt this standard for the year
ending December 31, 1998.
Continued
46
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
In February 1998, the FASB issued Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and other Postretirement Benefits."
This statement modifies financial statement disclosures related to pension
and other postretirement plans, and therefore will not have an effect on the
Company's financial position or results of operations, and is effective for
periods beginning after December 15, 1997.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with the 1997 presentation.
3. Marketable Securities
The Company considers its marketable securities to be "available-for-sale,"
as defined by Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", and,
accordingly, unrealized holding gains and losses are excluded from
operations and reported as a net amount in a separate component of
stockholders' equity.
The Company did not have any marketable securities at December 31, 1996.
For marketable securities with maturities in excess of one and less than
three years, the following table summarizes the amortized cost basis, the
aggregate fair value, and gross unrealized holding gains and losses at
December 31, 1997:
Amortized Fair Unrealized Holding
Cost Basis Value Gains (Losses) Net
Corporate debt securities $1,885,860 $1,886,200 $1,496 $(1,156) $340
For the year ended December 31, 1997, there were no realized gains and
losses from the sale of marketable securities. 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.
Continued
47
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
4. Fixed Assets:
Fixed assets, including amounts under capitalized lease obligations, consist
of the following:
December 31,
1996 1997
Machinery and equipment $ 1,578,643 $ 1,702,892
Furniture and fixtures 138,415 138,415
Leasehold improvements 29,702 29,702
1,746,760 1,871,009
Less, Accumulated depreciation and
amortization (904,153) (1,182,835)
$ 842,607 $ 688,174
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
1996 1997
Accounts payable $ 701,472 $ 517,714
Fees payable to Scientific Advisory Board
members 60,000 38,500
Accrued payroll and related costs 53,874 330,480
Legal and accounting fees payable 937,493 322,819
Deferred lease liability, current portion 33,005 16,735
$1,785,844 $1,226,248
6. Stockholders' Equity:
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares, of which 40,000,000 shares are
designated as common shares, par value $.0013 ("Common Stock"), and
20,000,000 shares are designated as preferred shares, par value $.001. The
Board has the authority to issue common and preferred shares, in series,
with rights and privileges determined by the Board. Prior to the Company's
initial public offering ("IPO"), 4,000,000 preferred shares were designated
as Series A Preferred Stock ("Series A"), 2,500,000 shares were designated
as Series B Preferred Stock ("Series B") and 3,750,000 shares were
designated as Series C Preferred Stock ("Series C") (collectively the
"Preferred Stock"). Prior to December 31, 1994, the Company sold an
aggregate of 4,290,830 shares of Series A and Series B Preferred Stock in
consideration for approximately $15 million.
Continued
48
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
During 1995 and 1996, the Company raised $897,000 and $4,777,000, net of
expenses, from the sale of approximately 44,900 Units and 241,203 Units,
respectively (the "C Units") in a private placement. In addition, during
December 1995, a stockholder converted a note payable into approximately
61,200 C Units (see Note 7). Each C Unit consists of four shares of Series
C and one five-year warrant (the "C Warrant") which currently entitles the
holder to purchase .75 share of Common Stock at $6.67 per share. The number
of C Warrants and their exercise price are subject to adjustment in the
event the Company issues additional shares of Common Stock at below defined
per share prices. As of December 31, 1997, 347,249 C Warrants were issued
and outstanding and fully exercisable into 260,455 shares of common stock.
During November 1997, the Company completed an IPO of 2,300,000 shares of
its Common Stock, in which the Company raised approximately $16 million, net
of expenses and underwriting discount. Concurrent with the IPO, all
outstanding shares of Preferred Stock, were converted automatically into
4,259,878 shares of Common Stock.
7. Note Payable - Stockholder:
During 1995, the Company borrowed $1,200,000 under a promissory note from a
stockholder. The promissory note, as amended and restated, provided for
interest to accrue at a rate of 10% per annum. Interest and principal were
payable upon demand, but not before December 8, 1995. During December 1995,
the promissory note plus accrued interest of $23,671 were exchanged for
approximately 61,200 C Units (see Note 6).
8. Commitments and Contingencies:
(a) Operating Leases
The Company leases office and laboratory space under noncancelable lease
agreements expiring April 30, 1998 (the "Leases"). The Leases provide
for escalations of the minimum rent during the lease term as well as
additional charges based upon usage of certain utilities in excess of
defined amounts ("Additional Utility Charges"). The Company recognizes
rental expense from the Leases on the straight-line basis. During 1995,
the Company recognized rental expense in excess of amounts paid of
$24,000, while during the years ended December 31, 1996 and 1997,
approximately $4,000 and $33,000, respectively, of previously recognized
rent expense, which had been included as a deferred lease liability was
paid.
Continued
49
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
On January 27, 1998, the Company entered into a sublease agreement
("Sublease") consolidating and extending the Leases for office and
laboratory space from May 1, 1998 through December 31, 1999. Fixed
monthly rental expense totals approximately $54,000. The Sublease can
be extended at the option of the Company for three additional one-year
terms; however, the second and third options are subject to approval by
the landlord.
The Company also leases office equipment and an automobile under
noncancelable operating leases. The leases expire at various times
through March 2002.
Future minimum annual payments under all operating lease agreements,
including the Sublease, are as follows:
Minimum
Years ending Annual
December 31, Payments
1998 $ 671,908
1999 657,829
2000 8,569
2001 7,534
2002 1,521
$1,347,361
Rental expense totaled approximately $657,000, $645,000 and $628,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Additional Utility Charges, were not material for these periods.
(b) Capital Leases
The Company leases certain equipment under various noncancelable capital
lease agreements. The leases are for periods ranging from three to five
years, after which the Company: (i) either has the option or is required
to purchase the equipment at defined amounts or (ii) may extend the
lease for up to one additional year at defined monthly payments or (iii)
is required to return the equipment, as per the respective lease
agreements.
Continued
50
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
As of December 31, 1997, minimum annual payments under all capital
leases, including required payments to acquire leased equipment, are as
follows:
Minimum
Years Ending Annual
December 31, Payments
1998 $112,443
1999 85,602
2000 62,095
2001 22,840
282,980
Less, Amounts representing interest (58,719)
Present value of net minimum
capital lease payments $224,261
Leased equipment included as a component of fixed assets was
approximately $807,000 and $835,000 at December 31, 1996 and 1997,
respectively; related accumulated depreciation was approximately
$383,000 and $473,000 for the same respective periods.
(c) Licensing and Corporate Collaboration Agreements:
(i) Universities
The Company (as licensee) has a worldwide licensing agreement with
Columbia University ("Columbia"). The license, as amended during
October 1996, provides the Company with the exclusive right to use
certain technology developed on behalf of Columbia. According to
the terms of the agreement, the Company is required to pay
nonrefundable licensing fees ("Licensing Fees"), payable in
installments by defined dates or, if earlier, as certain milestones
associated with product development ("Milestones") occur, as
defined, which include the manufacture and distribution of a product
which uses the licensed technology by 2004. The Company expenses
Licensing Fees when they become payable by the Company to Columbia.
In addition, the Company is required to remit royalties based upon
the greater of minimum royalties, as defined, or a percentage of net
sales of products which utilize the licensed technology and a
portion of sublicensing income, as defined. The licensing agreement
may be terminated by Columbia under certain circumstances which
includes the Company's failure to achieve the Milestones; however,
Columbia shall not unreasonably withhold its consent to revisions to
the due dates for achieving the Milestones under certain
circumstances. If not terminated early, the agreement shall
continue until expiration, lapse or invalidation of Columbia's
patents on the licensed technology. The Company has the right to
terminate the agreement at any time upon 90 days prior written
notice. The termination of the license could have a material
adverse effect on the business of the Company.
Continued
51
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
The Company (as licensee) also has a non-exclusive licensing
agreement with Stanford University whereby the Company has the non-
exclusive, non-transferable right to use certain technology owned by
the university. According to the terms of the agreement, the
Company will be required to remit royalties based upon the greater
of minimum royalties, as defined or various percentages of sales of
products resulting from the use of licensed patent rights, as
defined. Royalties shall continue to be payable, irrespective of
termination of this license agreement, until such time as all sales
of products which utilize the licensed technology shall have ceased.
In September 1996, the Company (as licensee) entered into a
licensing agreement with The Regents of the University of California
("Regents"). According to the terms of the agreement, the Company
is required to remit royalties based upon the greater of minimum of
royalties or a percentage of product sales and a portion of
sublicensing income, as defined. The agreement can be terminated by
the Company upon 90 days notice or by Regents in the event the
Company fails to perform, which includes the achievement of certain
defined milestones; otherwise the agreement terminates upon the
lapse of Regents' patent regarding the licensed technology. Early
termination of the agreement could have a material adverse effect on
the business of the Company. Although the Company intends to use
its best efforts to comply with the terms of the agreement, there
can be no assurances that the agreement will not be terminated.
(ii) Sloan-Kettering Institute for Cancer Research
In November 1994, the Company (as licensee) entered into a worldwide
exclusive licensing agreement with Sloan-Kettering Institute for
Cancer Research ("Sloan-Kettering") whereby the Company has the
exclusive right to use certain technology owned by Sloan-Kettering.
Certain employees of Sloan-Kettering are consultants to the Company
(see Note 8(d)). According to the terms of the agreement, the
Company was required to pay nonrefundable, noncreditable licensing
fees in installments. Commencing in 1995, the Company is required
to remit royalties based upon the greater of minimum royalties, as
defined, or as a percentage of sales of any licensed product, as
defined ("Product Royalties"), and sublicense income, as defined,
earned under sublicenses granted by the Company in accordance with
this licensing agreement ("Sublicense Royalties"). In the event
that no Product Royalties or Sublicense Royalties are due in a given
calendar year, then a defined percentage of that year's minimum
royalty will be creditable against future Product Royalties or
Sublicense Royalties due Sloan-Kettering. The licensing agreement
may be terminated by Sloan-Kettering in the event that the Company
fails to achieve certain defined objectives, which include the
manufacture and distribution of a product which uses the licensed
technology, by 2000, or if the Company fails to satisfy certain
other contractual obligations ("Early Termination"); otherwise the
agreement shall terminate either upon the expiration or abandonment
of Sloan-Kettering's patents on the technology licensed, or 15 years
from the date of first commercial sale, as defined, whichever is
later. With regard to Early Termination, Sloan-Kettering shall not
unreasonably withhold its consent to revisions to the due dates for
achieving the defined objectives under certain circumstances. The
Company has the right to terminate the agreement at any time upon 90
days prior written notice ("Company Termination"). In the event of
Early Termination or Company Termination, all licensing rights under
the agreement would revert to Sloan-Kettering. Early Termination of
the license could have a material adverse effect on the business of
the Company. Although the Company intends to use its best efforts
to comply with the terms of the license, there can be no assurance
that the licensing agreement will not be terminated.
Continued
52
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
(iii)Aquila Biopharmaceuticals, Inc.
In August 1995, the Company (as licensee) entered into a license and
supply agreement (the "L&S Agreement") with Aquila
Biopharmaceuticals, Inc. ("Aquila"). Under the terms of the L&S
Agreement, the Company obtained a coexclusive license to use certain
technology and a right to purchase QS-21 adjuvant (the "Product")
from Aquila for use in the Company's research and development
activities. In consideration for the license, the Company paid a
nonrefundable, noncreditable license fee and issued 45,000
restricted shares of the Company's Common Stock ("Restricted
Shares") to Aquila. The Restricted Shares are nontransferable with
this restriction lapsing upon the Company's achievement of certain
milestones ("L&S Milestones"), as defined. In the event that any
one or more L&S Milestones do not occur, the underlying Restricted
Shares would be returned to the Company. As of December 31, 1997,
the restrictions on 11,250 shares of common stock have lapsed. The
fair value of the Restricted Shares, combined with the noncreditable
license fee, were expensed during 1995 as research and development.
In addition, the Company will be required to remit royalties based
upon the net sales of products sold using the licensed technology
("Licensed Products") and a defined percentage of any sublicense
fees and royalties payable to the Company with respect to Licensed
Products. The L&S Agreement may be terminated by Aquila in the
event that the Company fails to achieve certain defined objectives,
which include the manufacture and distribution of a Licensed
Product, by 2002 ("Early Termination"); otherwise the L&S Agreement
shall terminate upon the expiration of Aquila's patents on the
technology licensed. With regard to Early Termination, Aquila shall
not unreasonably withhold its consent to revisions to the due dates
for achieving the L&S Milestones under certain circumstances. The
Company has the right to terminate the L&S Agreement at any time
upon 90 days prior written notice ("Company Termination"), as
defined. In the event of Early Termination or Company Termination,
all licensing rights under the agreement would revert to Aquila.
Early termination of the L&S Agreement would have a material adverse
effect on the business of the Company. Although the Company intends
to use its best efforts to comply with the terms of the L&S
Agreement, there can be no assurance that the agreement will not be
terminated.
Continued
53
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
(iv) Bristol-Myers Squibb Company
In July 1997, the Company and Bristol-Myers Squibb Company ("BMS")
entered into a Joint Development and Master License Agreement (the
"BMS License Agreement") under which BMS obtained an exclusive
worldwide license to manufacture, use and sell products resulting
from development of the Company's products related to certain
therapeutic cancer vaccines (the "Cancer Vaccines"). Upon execution
of the agreement, BMS made non-refundable cash payments of $9.5
million, as reimbursement for expenses previously incurred by the
Company in the development of the Cancer Vaccines, $2.0 million as a
licensing fee and approximately $1.8 million as reimbursement of the
Company's budgeted clinical development costs for the Cancer
Vaccines for the period April 15, 1997 through September 30, 1997.
In addition, BMS is obligated to make future non-refundable payments
as defined upon the achievement of specified milestones and pay
royalties on any product sales. BMS is also required to fund
continued development, clinical trials and regulatory filings
("Development Costs") conducted by the Company on a time and
material basis related to the Cancer Vaccines. BMS's funding of
future Development Costs are refundable by the Company only to the
extent that the Company receives such funding in advance and fails
to expend such amounts for their intended purposes. The Company
recognized as revenue the reimbursement of prior expenses and the
licensing fee upon receipt of the funds. The Company recognizes
revenue for the funding of Development Costs on a pro rata basis as
the related expenses are incurred.
The BMS License Agreement and related sublicenses terminate at
various times, generally upon the expiration or abandonment of the
related patents. The agreements can also be terminated by either
party upon a material uncured breach by the other party. BMS has
the further right to terminate the BMS License Agreement (including
its funding and milestone obligations) as to specified licensed
products at specified times.
Continued
54
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
(v) Hoffmann-LaRoche
On December 23, 1997 (the "Effective Date"), the Company entered
into an agreement (the "Roche Agreement") to conduct a research
collaboration with F. Hoffmann-LaRoche Ltd. and Hoffmann-LaRoche,
Inc. (collectively "Roche") to identify novel HIV therapeutics. The
Roche Agreement grants 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.
The terms of the Roche Agreement require Roche to pay the Company an
upfront fee and defined amounts annually for the first year, with
annual adjustments thereafter, for the funding of research conducted
by the Company. Roche's annual payment is made quarterly in
advance. Such funding will continue for a minimum of two years from
the Effective Date. In addition, the Company will receive non-
refundable milestone payments and royalty payments based on
achievement of certain events and a percentage of worldwide sales of
products developed from the collaboration, respectively. The
Company recognizes as revenue milestone payments as earned and
research reimbursements on a pro rata basis as the underlying costs
are incurred. The collaboration has a term of three years and may
be extended by mutual agreement. The Roche Agreement shall remain
in force until the expiration of all obligations to pay royalties
pursuant to any licenses specified by the Roche Agreement. Roche
may terminate the Roche Agreement at any time with prior written
notice, at which time the license granted by the Company will
terminate. Either party may terminate the Roche Agreement if the
other party defaults on its obligations and such default is not
cured within sixty days of written notice of such default.
In connection with the above agreements, the Company has recognized
research and development expenses, including transaction costs, totaling
approximately $382,500, $170,500 and $1,901,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. Such expenses include
the fair value of the Restricted Shares and 120,000 shares of common
stock issued in July 1997. In addition, as of December 31, 1997,
remaining payments associated with milestones and defined objectives
with respect to the above agreements total $650,000. Future annual
minimum royalties under the licensing agreements described in (i)
through (iii) above are not significant.
Continued
55
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
(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 varying terms and provisions
which include fees to be paid by the Company and services to be provided
by the Scientists, some of whom are members of the Company's Scientific
Advisory Board. Certain Scientists have purchased Common Stock or
received stock options which are subject to vesting provisions, as
defined. The Company has recognized expenses with regards to these
consulting agreements totaling approximately $245,000, $268,000, and
$971,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Such expenses include the fair value of stock options of
approximately $107,000 and $112,000 and $772,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
9. Stock Option Plans:
The Company adopted three stock option plans, the Non-Qualified Stock Option
Plan, the Stock Option Plan and the Amended Stock Incentive Plan
(individually the "89 Plan," "93 Plan" and "96 Plan," respectively, or
collectively, the "Plans"). Under the 89 Plan, the 93 Plan and the 96 Plan
as amended, a maximum of 375,000, 750,000 and 1,050,000 shares of Common
Stock, respectively, are available for awards to employees, consultants,
directors and other individuals who render services to the Company
(collectively, "Optionees"). 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 Optionees and to determine the exercise price, vesting term and
expiration date. The 96 Plan provides for the Board or Committee to grant
to Optionees stock options, stock appreciation rights, restricted stock
performance awards or phantom stock, as defined (collectively "Awards").
The Committee will also determine the term and vesting of the Award and the
Committee may in its discretion accelerate the vesting of an Award at any
time. Options granted under the Plans generally vest pro rata over five to
ten year periods and have terms of ten to twenty years. Except as noted
below, the exercise price of outstanding awards was equal to the fair value
of the Company's common stock on the dates of grant. Under the 89 Plan, for
a period of ten years following the termination for any reason of an
Optionee's employment or active involvement with the Company, as determined
by the Board, the Company has the right to repurchase any or all shares of
Common Stock held by the Optionee and/or any or all of the vested but
unexercised portion of any option granted to such Optionee at a purchase
price defined by the 89 Plan. The 89 plan terminated in April, 1994 and the
93 Plan and the 96 Plan will terminate in December, 2003 and October, 2006,
respectively; however, options granted before termination of the Plans will
continue under the respective Plans until exercised, cancelled or expired.
Continued
56
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
The following table summarizes stock option information for the Plans as of
December 31, 1997:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$1.33 191,823 8.0 yr. $1.33 167,260 $1.33
$3.67 - $5.33 1,357,925 7.5 yr. $4.48 649,126 $4.58
$6.67 - $8.00 9,600 8.7 yr. $6.96 2,200 $7.09
1,559,348 818,586
Transactions involving stock option awards under the Plans during 1995, 1996
and 1997 are summarized as follows:
Weighted-
Average
Number Exercise
Of Shares Price (2)
Balance outstanding, December 31, 1994 1,011,236 $4.40
1995: Granted 4,500 $6.67
Cancelled (45,000) $4.91
Balance outstanding, December 31, 1995 970,736 $4.39
1996: Granted 94,500 $6.56
Cancelled (24,000) $5.33
Balance outstanding, December 31, 1996 1,041,236 $4.57
1997: Granted (1) 848,000 $4.00
Cancelled (1) (302,888) $5.36
Exercised (27,000) $1.33
Balance outstanding, December 31, 1997 1,559,348 $4.17
(1) Includes 216,225 options repriced, as discussed below
(2) For all options granted in 1995 and 1996 and 2,100 in 1997,
the option exercise price equaled the fair value of the Company's
common stock on the date of grant. For 1997, 845,900 options
were granted, with an exercise price below the fair market value
of the Company's common stock on the date of grant.
As of December 31, 1995, 1996 and 1997, 458,742, 488,553, and 818,586
options with weighted average exercise prices of $3.61, $3.59 and $3.92,
respectively, were exercisable under the Plans.
Continued
57
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
As of December 31, 1997, shares available for future grants under the 93
Plan and the 96 Plan amounted to 30,763 and 532,400, respectively.
The Company, during 1997, granted an aggregate of 520,900 stock options
(including 216,225 options repriced as discussed below) to employees, with
an average exercise price of $4.00, which was below the estimated fair value
of the common stock on the date of grant. Accordingly, the Company is
recognizing compensation expense on a pro rata basis over the respective
options' vesting periods, of one to five years, for the difference between
the estimated fair value of the common stock on the date the option was
granted and the exercise price ("Unamortized Compensation"). The
Unamortized Compensation as of December 31, 1997 has been included within
stockholders equity. For the year ended December 31, 1997, the annual
amortization of Unearned Compensation for employees totaled $322,296. As of
December 31, 1997 the unamortized portion of Unearned Compensation for
employees totaled $732,404.
The Company since its inception has granted an aggregate of 1,082,000
options with an average exercise price of $3.86 to consultants in
consideration for services. The fair values of these options have been
included as Unearned Compensation and are being amortized as compensation
expense on a pro rata basis over the service period ranging from four years
to ten years. For the years ended December 31, 1995, 1996 and 1997 the
annual amortization of Unearned Compensation for consultants totaled
$107,363, $128,963 and $778,358, respectively. The above amounts included
the fair value of stock options issued to consultants as discussed in Note
8(d). As of December 31, 1997, the unamortized portion of Unearned
Compensation for consultants totaled $1,028,977.
On April 1, 1997, the exercise price of 216,225 options granted under the
Plans, having exercise prices in excess of $4.00 per share, were reduced to
$4.00 per share. The exercise price of the repriced options was less than
the fair value of the underlying stock on the date of repricing.
Accordingly, the Company is recognizing compensation expense on a pro rata
basis over the respective remaining options' vesting periods of one to five
years for the difference between the estimated fair value of the Common
Stock on the date the option was repriced and $4.00. All other aspects of
the options remain unchanged.
Continued
58
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
During 1993, the Company adopted an Executive Stock Option Plan (the
"Executive Plan"), under which a maximum of 750,000 shares of Common Stock,
adjusted for stock splits, stock dividends, and other capital adjustments,
as defined, are available for stock option awards. Awards issued under the
Executive Plan may qualify as incentive stock options ("ISOs"), as defined
by the Internal Revenue Code, or may be granted as non-qualified stock
options. Under the Executive Plan, the Board may award options to senior
executive employees (including officers who may be members of the Board) of
the Company, as defined. The Executive Plan will terminate on December 15,
2003; however, any option 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 750,000 stock options
under the Executive Plan to one officer, of which 664,774 were non-qualified
options ("NQOs") and 85,226 were ISOs. The NQOs and ISOs have a term of ten
years and entitle the officer to purchase an equal number of shares of
Common Stock at prices of $5.33 and $5.87 per share, respectively, which
represented the estimated fair market value and 110% of the estimated fair
market value of the Company's Common Stock at the date of grant, as
determined by the Board of Directors. 375,000 of the options vest pro rata
over a period of four years, with the remaining 375,000 options vesting in
full on the tenth anniversary of the date of grant; however, vesting with
respect to the options vesting on the tenth anniversary will be accelerated
in the event of the effective date of an initial public offering of the
Company's Common Stock that yields certain gross per share amounts, as
defined, or immediately before the closing of an acquisition of the Company.
As the result of the Company's IPO, 75,000 options vested.
The following table summarizes stock option information for the Executive
Plan as of December 31, 1997:
Options Outstanding
Weighted- Options Exercisable
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$5.33 - $5.87 750,000 6.0 yr $5.39 450,000 $5.43
The following table summarizes the pro forma operating results of the
Company had compensation costs for the Plans and the Executive Plan been
determined in accordance with the fair value based method of accounting for
stock based compensation as prescribed by SFAS No. 123. Since option grants
awarded during 1995, 1996 and 1997 vest over several years and additional
awards are expected to be issued in the future, the pro forma results shown
below are not likely to be representative of the effects on future years of
the application of the fair value based method.
Continued
59
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
Years Ended December 31,
1995 1996 1997
Pro forma net (loss) income $(4,505,130) $(6,189,086) $5,016,206
Pro forma net (loss) income
per share, basic $(1.99) $(2.70) $1.60
Pro forma net (loss) income
per share, diluted $(1.99) $(2.70) $0.65
For the purpose of the above pro forma calculation, the fair value of each
option granted was estimated on the date of grant using the Black-Scholes
option pricing model. The weighted-average fair value of the options
granted during 1995, 1996 and 1997 was $4.59, $4.60 and $3.91, respectively.
The following assumptions were used in computing the fair value of option
grants: expected volatility of 81%, expected lives of 5 years after
vesting; zero dividend yield and weighted-average risk-free interest rates
of 6.0% in 1995 and 1996 and 6.72% in 1997.
10.Employee Savings Plan:
The Company, during 1993, 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, as defined,
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, as defined. The Company has agreed to match 25% of up
to the first 8% of compensation that eligible employees contribute to the
Amended Plan, as defined. In addition, the Company may also make a
discretionary contribution, as defined, each year on behalf of all
participants who are non-highly compensated employees, as defined. The
Company made matching contributions of approximately $12,000, $10,000 and
$9,000 to the Amended Plan for the years ended December 31, 1995, 1996 and
1997, respectively.
11.Income Taxes:
The tax provision for year ended December 31, 1997 has been computed based
upon the prevailing federal and state tax rates, offset by the utilization
of net operating loss carryforwards to the extent permitted by the
alternative minimum tax rules of the federal and state tax codes. There is
no benefit for federal or state income taxes for the years ended
December 31, 1995 and 1996, since the Company has incurred operating losses
and has established a valuation allowance equal to the total deferred tax
asset.
Continued
60
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
The differences between the Company's effective income tax rate, (benefit)
provision, and the Federal statutory rate is reconciled below:
Years Ended December 31,
1995 1996 1997
Federal statutory rate (34)% (34)% 34%
State income taxes, net of Federal (6) (6) 6
benefit
Research and experimental tax credit (1) (2) (3)
Change in valuation allowance 41 42 (32)
- % - % 5%
The tax effect of temporary differences, net operating losses and tax
credits carryforwards as of December 31, 1996 and 1997 are as follows:
December 31,
1996 1997
Deferred tax assets and valuation allowance:
Net operating loss carry-forwards $ 5,995,737 $ 1,638,783
Fixed assets 165,219 98,894
Deferred charges 3,491,832 5,726,342
Research and experimental tax credit
carry-forwards 585,618 785,284
Alternative minimum tax credit 257,770
Valuation allowance (10,238,406) (8,507,073)
$ - $ -
The Company does not recognize deferred tax assets considering the 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.
As of December 31, 1997, the Company has available, for tax purposes, unused
net operating loss carryforwards of approximately $4.0 million which will
expire in various years from 2002 to 2012. The Company's research and
experimental tax credit carryforwards expire in various years from 2003 to
2012. In addition, the Company's alternative minimum tax credit can be
carried forward indefinitely. Future ownership changes may limit the future
utilization of these net operating loss and tax credit carryforwards as
defined by the federal and state tax codes.
Continued
61
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
12.Line of Credit:
During March 1997 the Company obtained a line of credit ("Line") from a
bank. The terms of the Line provide for the Company to borrow up to $2
million. Outstanding borrowings accrue interest, payable monthly, at the
bank's prime rate of interest. The Line expired on July 31, 1997. The
repayment of the Line was guaranteed by two affiliates of a stockholder of
the Company ("Affiliates").
In consideration for the guarantee of the Line, the Company issued 70,000
warrants to the Affiliates. Such warrants vested immediately and expire
after five years. The exercise price was determined to be $4.00 per share
in November 1997 upon completion of the Company's IPO. The aggregate fair
value of the warrants totaled approximately $228,000, which was expensed
during the year ended December 31, 1997.
13.Net (Loss) Income Per Share:
The Company's basic net (loss) income per share amounts have been computed
by dividing net (loss) income by the weighted average number of common
shares outstanding during the period. For the years ended December 31, 1995
and 1996, the Company reported net losses and, therefore, common stock
equivalents were not included since such inclusion would have been anti-
dilutive. For the year ended December 31, 1997, the Company reported net
income and, therefore, all common stock equivalents have been included in
the calculation, as follows:
Net Income Per
(Loss) Shares Share
(Numerator) (Denominator) Amount
1997:
Basic:
Net income $ 5,139,423 3,127,855 $1.64
Effect of Dilutive Securities
Options 829,156
Warrants 77,211
Effect of conversion of
preferred stock 3,769,700
Diluted:
Amounts used in computing per
share data $ 5,139,423 7,803,922 $0.66
1996:
Basic and Diluted:
Net (loss) $ (6,142,674) 2,294,675 ($2.68)
1995:
Basic and Diluted:
Net (loss) $ (4,503,496) 2,264,839 ($1.99)
Continued
62
PROGENICS PHARMACEUTICALS, INC.
NOTES to FINANCIAL STATEMENTS, Continued
For the years ended December 31, 1995 and 1996, common stock equivalents
which have been excluded from diluted per share amounts because their effect
would have been anti-dilutive, include 1,912,770 and 2,051,691 options and
warrants with weighted average exercise prices of $5.01 and $5.14,
respectively, and 3,536,260 and 4,259,878 shares of convertible preferred
stock. For the year ended December 31, 1997, no common stock equivalents
were excluded from the computation of diluted per share amounts.
Continued
63
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
64
PART III
Item 10. Directors and Executive Officers of the Registrant
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
Item 11. Executive Compensation
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
Item 13. Certain Relationships and Related Transactions
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
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. Report of Independent Accountants
2. Financial Statements and Supplemental Data
Balance Sheets at December 31, 1996 and 1997
Statements of Operations for the years ended December 31, 1995, 1996 and
1997
Statements of Stockholders' Equity (Deficit) for the years ended December
31, 1995, 1996 and 1997
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997
Notes to the Financial Statements
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1997.
c) 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.
65
SIGNATURES
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: /s/ Paul Maddon, M.D., Ph.D.
Paul J. Maddon, M.D., Ph.D.
Chairman of the Board, Chief Executive Officer
and President
Date: March 31, 1998
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 Title Date
/s/ Paul J. Maddon, M.D., Ph.D. Chairman of the Board, March 31, 1998
Paul J. Maddon, M.D., Ph.D. Chief Executive Officer
and President (Principal
Executive Officer)
/s/ Robert A. McKinney Vice President, Finance March 31, 1998
Robert A. McKinney and Operations and
Treasurer (Principal
Financial and Accounting
Officer)
/s/ Charles A. Baker Director March 31, 1998
Charles A. Baker
/s/ Mark F. Dalton Director March 31, 1998
Mark F. Dalton
/s/ Stephen P. Goff, Ph.D. Director March 31, 1998
Stephen P. Goff, Ph.D.
/s/ Elizabeth M. Greetham Director March 31, 1998
Elizabeth M. Greetham
/s/ Paul F. Jacobson Director March 31, 1998
Paul F. Jacobson
/s/ David A. Scheinberg, M.D., Ph.D. Director March 31, 1998
David A. Scheinberg, M.D., Ph.D.
66
EXHIBIT INDEX
Exhibit No. Description of Exhibit
*3.1 Certificate of Incorporation of the Registrant, as amended.
*3.2 By-laws of the Registrant.
*4.1 Specimen Certificate for Common Stock, $.0013 par value
per share, of the Registrant
*10.1 Form of Registration Rights Agreement
*10.2 1989 Non-Qualified Stock Option Plan***
*10.3 1993 Stock Option Plan as amended***
*10.4 1993 Executive Stock Option Plan***
*10.5 Amended 1996 Stock Incentive Plan***
*10.6 Form of Indemnification Agreement***
*10.7 Employment Agreement dated December 15, 1993 between the
Registrant and Dr. Paul J. Maddon***
*10.8 Letter dated August 25, 1994 between the Registrant and
Dr. Robert J. Israel***
*10.9 Sublease dated July 13, 1988 between the Registrant and
Union Carbide Corporation
*+10.10 gp120 Supply Agreement dated July 19, 1995 between the
Registrant and E. I. DuPont DeNemours and Company, as
amended, October 27, 1995
*+10.11 sCD4 Supply Agreement dated June 27, 1995 between the
Registrant and E. I. DuPont De Nemours and Company
*+10.12 Supply Agreement dated February 8, 1996 between the
Registrant and Intracel Corporation Stock Purchase
Agreement dated February 11, 1994 between the Registrant
and Christopher Ben (Exhibit 10.13 to the 1993 Form 10-K)
*+10.13 License Agreement dated November 17, 1994 between the
Registrant and Sloan-Kettering Institute for Cancer Research
*+10.14 Clinical Trial Agreement dated December 12, 1994 between the
Registrant and Sloan-Kettering Institute for Cancer Research
*+10.15 QS-21 License and Supply Agreement dated August 31, 1995
between the Registrant and Cambridge Biotech Corporation
(now known as Aquila Biopharmaceuticals, Inc.)
*+10.16 gp120 Sublicense Agreement dated March 17, 1995 between
the Registrant and Cambridge Biotech Corporation (now
known as Aquila Biopharmaceuticals, Inc.)
*+10.17 Cooperative Research and Development Agreement dated
February 25, 1993 between the Registrant and the Centers
for Disease Control and Prevention
*+10.18 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
*+10.19 License Agreement dated June 25, 1996 between the
Registrant and The Regents of the University of California
*+10.20 KLH Supply Agreement dated July 1, 1996 between the
Registrant and PerImmune, Inc.
*+10.21 sCD4 Supply Agreement dated November 3, 1993 between the
Registrant and E.I. DuPont DeNemours and Company
*10.22 Lease dated June 30, 1994 between the Registrant and Keren
Limited Partnership
*+10.23 Joint Development and Master License Agreement dated as of
April 15, 1997 between Bristol-Myers Squibb Company and
the Registrant
*+10.24 Sublicense Agreement with respect to the Sloan-Kettering
License Agreement dated as of April 15, 1997 between
Bristol-Myers Squibb Company and the Registrant
*+10.25 Sublicense Agreement with respect to The Regents' License
Agreement dated April 15, 1997 between Bristol-Myers
Squibb Company and the Registrant
*+10.26 Sublicense Agreement with respect to Aquila Biopharmaceuticals,
Inc. License and Supply Agreement dated April 15, 1997 between
Bristol-Myers Squibb Company and the Registrant
*+10.27 Letter agreement dated as of April 15, 1997 among Bristol-
Myers Squibb Company, Registrant and the Sloan-Kettering
Institute for Cancer Research
*10.28 Letter agreement dated as of April 15, 1997 among Bristol-
Myers Squibb Company, Registrant and The Regents of the
University of California
*+10.29 Letter agreement dated as of April 15, 1997 among Bristol-Myers
Squibb Company, Registrant and Aquila Biopharmaceuticals, Inc.
*10.30 Form of Warrant to purchase Series C Preferred Stock
*10.31 Form of Warrant issued to Tudor BVI Futures, Ltd. and
Tudor Global Trading LLC
**+10.32 Heads of Agreement, effective as of December 23, 1997, among
F. Hoffman-La Roche Ltd., Hoffmann-La Roche Inc. and Registrant.
27.1 Financial Data Schedule.
27.2 Restarted Financial Data Schedule.
_____________
* 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.
** Previously filed as an exhibit to the Company's Current
Report on Form 8-K dated February 6, 1998, 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.