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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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PROGENICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3379479
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Old Saw Mill River Road
Tarrytown, NY 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, par value $0.0013 per share
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 27, 2002, based upon the closing price of the Common Stock
on the Nasdaq National Market of $15.25 per share, was approximately
$120,930,823.(1) As of March 27, 2002, 12,458,696 shares of Common Stock, par
value $.0013 per share, were outstanding.
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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.
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(1) Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers, directors and five percent stockholders of the
Registrant, without conceding that any such person is an "affiliate" of the
Registrant for purposes of the Federal securities laws.
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TABLE OF CONTENTS
Page
----
PART I .................................................................. 2
Item 1. Business .................................................. 2
Item 2. Properties ................................................ 35
Item 3. Litigation ................................................ 35
Item 4. Submission of Matters to a Vote of Security Holders ....... 35
PART II ................................................................. 36
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ....................................... 36
Item 6. Selected Financial Data ................................... 37
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 37
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 42
Item 8. Financial Statements and Supplementary Data ............... 42
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................... 42
PART III ................................................................ 43
Item 10. Directors and Executive Officers of the Registrant ........ 43
Item 11. Executive Compensation .................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management ................................................ 43
Item 13. Certain Relationships and Related Transactions ............ 43
PART IV ................................................................. 44
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K .................................................. 44
SIGNATURES .............................................................. 45
INDEX TO FINANCIAL STATEMENTS ........................................... F-1
EXHIBIT INDEX
PART I
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. Our 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 our 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 those described under
the caption "Business-Risk Factors."
We file annual, quarterly and current reports, proxy statements and other
information with the U.S. Securities and Exchange Commission ("SEC"). You may
read and copy any document we file at the SEC's Public Reference Rooms at 450
Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of our
documents, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. These SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov.
Item 1. Business
GENERAL
Overview
Progenics Pharmaceuticals, Inc. is a biopharmaceutical company focusing on
the development and commercialization of innovative therapeutic products to
address the unmet medical needs of patients with debilitating conditions and
life-threatening diseases. The Company applies its expertise in immunology and
molecular biology to develop biopharmaceuticals to fight viral diseases, such
as human immunodeficiency virus ("HIV") infection, and cancers, including
malignant melanoma and prostate cancer. The Company is conducting Phase II
clinical studies with methylnaltrexone, a compound designed to block the
debilitating side effects of opioid analgesics without interfering with pain
palliation. The Company has initiated Phase II clinical trials with its lead
HIV product, PRO 542, a viral-entry inhibitor and is in preclinical
development with PRO 140 and in research and discovery of follow-on product
candidates in HIV infection. Progenics' most clinically advanced product, GMK,
is a cancer vaccine in Phase III clinical trials for the treatment of
malignant melanoma. The Company is developing cancer immunotherapies based on
PSMA (prostate specific membrane antigen) technology. Dehydroascorbic acid
("DHA"), a novel small-molecule antioxidant, is the subject of preclinical
studies to treat stroke.
Product Development
We apply our expertise in immunology and molecular biology to the
development of therapeutic biopharmaceuticals that use components of the
immune system, particularly antibodies, to fight diseases. Our principal
programs are directed toward HIV and cancer and, most recently, symptom
management and supportive care. In the case of HIV, we are developing
therapeutic products by genetically engineering molecules that function as
antibodies and selectively target HIV for neutralization. We are also actively
engaged in research, discovery, and preclinical development of compounds based
on the primary HIV receptor, CD4, and HIV co-receptors, including CCR5 and
CXCR4, and their roles in viral attachment, fusion and entry. In the case of
cancer, we are developing monoclonal antibodies as well as therapeutic
vaccines that are designed to induce specific immune responses to cancer
antigens. Through our joint venture with Cytogen Corporation, we are pursuing
parallel programs for the development of antibodies directed against PSMA and
the development of vaccines designed to stimulate an immune response to PSMA.
In the palliative care area, since our recent licensing of methylnaltrexone
("MNTX"), we have embarked on a late-stage clinical development program. MNTX
is being tested in the clinic for the prevention or reversal of the
debilitating side effects of opioid analgesics without interfering with
analgesia and for treating post surgical bowel dysfunction.
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We are actively seeking out other promising products and technologies around
which to build development programs. Our in-licensing strategy has resulted in
our preclinical development program for DHA, a novel antioxidant which has
shown potential in preclinical models as a treatment for ischemic stroke and
neurological deficits attributable to stroke.
The following table summarizes the current status of our principal
development programs and product candidates and identifies any related
corporate collaborator:
Corporate
Program/Product Indication/Use Status(1) Collaborator
--------------- -------------- --------- ------------
Symptom Management
and Supportive Care
Methylnaltrexone Reversing opioid side Phase IIb in malignant pain --
effects; treating to be completed 2002, Phase
postoperative bowel III expected to commence late
dysfunction 2002; Phase II in post-
surgical bowel dysfunction
expected to begin in late
2002; Phase II in chronic
pain expected to begin in
2003.
HIV Therapeutics
PRO 542 HIV therapy Phase II --
PRO 140 HIV therapy Preclinical; Phase I/II --
expected to commence in 2003
Small-molecule drugs:
Co-receptor/fusion HIV therapy Research Roche
inhibition (CCR5/
CXCR4)
HIV attachment/fusion HIV therapy Research
inhibition (GP 41)
ProVax HIV vaccine Research --
Cancer Immunotherapeutics
GMK Vaccine for melanoma Phase III (Stages IIb and III --
disease)
Phase III (Stage II disease) --
MGV Vaccine for multiple cancers Phase I/II --
PSMA: Immunotherapeutics for Preclinical; Phase I/II Cytogen(2)
Vaccines prostate and other cancers of rsPSMA vaccine expected to
Monoclonal commence in 2002
Antibodies
Stroke
DHA Stroke Preclinical --
(1) "Research" means initial research related to specific molecular targets,
synthesis of new chemical entities, assay development or screening for
the identification of lead compounds.
"Preclinical" means that a lead compound is undergoing toxicology,
formulation and other testing in preparation for clinical trials.Testing
in the research and preclinical phases is often referred to as in vitro,
in vivo or ex vivo. In vitro refers to tests conducted in an artificial
environment, such as a test tube or culture media, as opposed to in-vivo,
which refers to tests in animals or otherwise in a living body, or ex
vivo, which refers to tests conducted outside the body on samples of
blood or other tissue that have been removed from the patient.
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Phase I-III clinical trials are safety and efficacy tests in humans as
follows:
"Phase I": Evaluation of safety.
"Phase I/II": Evaluation of safety with some measure of activity.
"Phase II": Evaluation of safety, dosing and activity or efficacy.
"Phase III": Larger scale evaluation of safety and efficacy.
See "Business--Government Regulation." The actual timing of events can
vary dramatically due to a variety of factors. See "--Risk Factors--Our
clinical trials could take longer to complete than we expect."
(2) Collaboration is in the form of a joint venture.
Symptom Management and Supportive Care
Opioids are the mainstay in controlling severe pain, with approximately 170
million prescriptions written annually in the U.S. To relieve pain, narcotic
medications such as morphine, codeine, and other opioid derivatives interact
with receptors that are located in the brain and spinal cord. Opioids also
activate receptors outside the central nervous system resulting in many cases
in undesirable side effects, including constipation, delayed gastric emptying,
nausea and vomiting, pruritis and urinary retention. Reversing the peripheral
side effects of opioid pain therapy, while maintaining analgesia, represents a
major treatment dilemma and a large, unmet medical need.
Methylnaltrexone
In October 2001, we entered into an agreement with UR Labs, Inc., to obtain
the worldwide exclusive rights to methylnaltrexone ("MNTX"), an
investigational drug in late-stage clinical development designed to reverse
certain side effects of opioid pain medications. UR Labs licensed MNTX from
the University of Chicago, where it was discovered. MNTX is designed to block
opioids from activating the peripheral receptors in the body that cause side
effects, such as constipation, delayed gastric emptying, nausea and vomiting,
pruritis and urinary retention. As MNTX does not cross the blood-brain barrier
in humans, it does not interfere with brain-centered pain relief.
Under the auspices of the University of Chicago, MNTX has been studied in
over 350 patients and volunteers in 14 clinical trials. Published studies have
reported that the compound was well tolerated and highly active in blocking
opioid-associated side effects without interfering with analgesia. In
addition, in October 2001, the University of Chicago Medical Center initiated
a double-blind, randomized Phase II study evaluating subcutaneous doses of
MNTX in cancer patients for the treatment of opioid-induced constipation.
Constipation is one of the debilitating complications of opioid pain therapy
that is not adequately treated with currently available laxatives and stool
softeners.
Subsequent to our entering into the UR Labs Agreement, we announced in
October 2001 statistically significant, positive results from additional Phase
II clinical studies of MNTX. Clinicians at the University of Chicago reported
that administration of MNTX prevented morphine-induced bowel paralysis and
reduced, in the aggregate, 12 common side effects of morphine. Investigators
further reported that subcutaneous administration of MNTX produced clinical
activity similar to that of intravenous or oral administration of the drug.
In February 2002, we initiated a Phase IIb clinical trial of subcutaneous
MNTX directed to the reversal of narcotic-induced constipation, a problem for
many patients treated with opioid pain medication. The clinical trial, using
subcutaneous doses of MNTX, is being conducted with patients being treated in
a hospice setting. Approximately 550,000 patients die from cancer in the U.S.
each year with the vast majority of these patients treated with opioids for
pain. An estimated 50% to 70% of such patients develop constipation. The goal
of the study is to gather more information about dosing and tolerability of
MNTX in preparation for Phase III clinical trials that we are scheduling to
begin in late 2002.
We believe that preclinical studies and clinical results support expanded
clinical testing of MNTX as a potential treatment for post-surgical bowel
dysfunction, a paralysis of the gastrointestinal tract that frequently occurs
after abdominal surgery and is accompanied by nausea, vomiting, and urinary
retention. An estimated
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five-million patients annually in the US are at high risk for developing post-
surgical bowel dysfunction. We intend to initiate in late 2002 Phase II
clinical studies of intravenous MNTX in post-surgical bowel dysfunction.
Another clinical development opportunity we plan to pursue for MNTX is the
reversal of opioid-induced bowel dysfunction in ambulatory patients with
chronic pain, including those suffering from headaches, joint pain, lower-back
pain, sickle-cell disease, fibromyalgia, and other disorders. According to a
recent national survey conducted for the American Pain Society and American
Academy of Pain Medicine, approximately four-million patients take opioids for
chronic pain relief associated with various diseases and conditions. We expect
to initiate Phase II clinical trials with oral MNTX for bowel dysfunction in
patients who must take opioids for chronic pain in 2003.
Given the extent of MNTX clinical testing completed or planned to date, the
Company believes it will be able to chart a development path that is designed
for timely submission of this compound for regulatory consideration. Pending
successful clinical trials and medical and regulatory reviews, we believe that
MNTX may be the first product candidate in our pipeline to be approved for
marketing.
The Human Immune System
The human immune system protects the body from disease by specifically
recognizing and destroying invading viruses, bacteria and other pathogens. In
addition, the immune system is capable of recognizing and eliminating from the
body abnormal cells, such as cells infected with viruses and bacteria, and
cancer cells. This recognition function relies on the immune system's ability
to identify as foreign specific molecular configurations which are generically
called antigens. White blood cells, particularly B and T lymphocytes, have the
ability to recognize antigens made by infectious agents and abnormal cells and
react to them. For example, B lymphocytes produce antibodies that recognize
specific antigens. Antibodies are complex protein molecules that can bind to
these antigens and neutralize or eliminate infectious agents and cancer cells.
Vaccines are designed to induce the production of antibodies against
specific 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 being developed as therapeutic agents 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 molecules are intended to mimic the body's own immune
response and are administered in situations where the immune response has been
suppressed or is otherwise inadequate.
HIV Therapeutics
HIV (human immunodeficiency virus) infection causes a slowly progressive
deterioration of the immune system which results in AIDS (Acquired Immune
Deficiency Syndrome). HIV specifically infects cells that have the CD4
receptor on their surface. Cells with the CD4 receptor are critical components
of the immune system and include T lymphocytes, monocytes, macrophages and
dendritic cells. The devastating effects of HIV are largely due to the
multiplication of the virus in these cells resulting in their dysfunction and
destruction.
Viral infection occurs when the virus binds to a host cell, enters the cell,
and by commandeering the cell's own reproductive machinery, creates thousands
of copies of itself within the host cell. This process is called viral
replication. Our scientists and their collaborators have made important
discoveries in understanding how HIV enters human cells and initiates viral
replication.
In the 1980s, our scientists, in collaboration with researchers at Columbia
University in New York City, the Institute of Cancer Research in London, and
the Centers for Disease Control and Prevention in Atlanta, 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 a specific glycoprotein, gp120, located on the
surface of the virus, binds with high affinity to the CD4 receptor. Although
these researchers demonstrated that binding to CD4 was necessary for HIV
attachment, further discoveries have shown that attachment alone is not
sufficient to enable the virus to enter the cell and initiate viral
replication.
Subsequently, our scientists, in collaboration with researchers at the Aaron
Diamond AIDS Research Center (ADARC), described in an article in Nature the
discovery of a co-receptor for HIV on the surface of human
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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. These scientists further determined that the gp120 binding
site on CCR5 is a discrete region at one end of the CCR5 molecule. Further
work by other scientists has established the existence of a second co-
receptor, CXCR4.
The HIV therapy research and development programs we are pursuing alone and
in collaboration with our academic and commercial partners, have been
recognized by the award of $4.9 million in National Institutes of Health
grants and research contracts in 2001.
Progenics' HIV Receptor Technologies
Based on our participation in the discoveries of CD4 and CCR5, we are
pursuing several approaches in the research and development of products
designed to block entry of HIV into human immune system cells. Our PRO 542
product candidate and our viral-entry inhibition programs are based on the CD4
receptor, and our PRO 140 and HIV co-receptor/fusion programs are based on the
CCR5 and CXCR4 co-receptors.
Because HIV must first attach to the CD4 receptor to infect human cells, we
believe that the part of the HIV gp120 glycoprotein that attaches to the CD4
receptor on immune system cells must remain constant across all strains of the
virus. The gp120 glycoprotein is located on the exterior of HIV. PRO 542
incorporates 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. In in vitro tests, these molecules 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
U.S. and the rest of the world. Our technology is targeted to a part of HIV
that is believed to be necessary for the virus to enter cells. Mutation at
this site would likely render the virus non-infectious, as it would be unable
to attach and infect immune-system cells. By targeting this attachment site of
the virus, we believe that our technology may address the viral resistance
seen with other HIV therapeutics caused by the high mutation rate of the
virus.
In another program, we have developed a panel of monoclonal antibodies
against CCR5 that have been shown to block the ability of HIV to infect cells
isolated from healthy individuals by inhibiting virus-to-cell fusion. One of
these monoclonal antibodies, which we have designated PRO 140, is designed to
inhibit HIV fusion in vitro at concentrations that have no apparent effect on
the normal function of CCR5.
Target Market
Our HIV 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. The World Health Organization (WHO) estimated
that as of the end of 2001, 1.5 million people in North America, Western
Europe, and Australia and 40 million people worldwide were living with HIV.
According to WHO, approximately 75,000 people in high-income developed
countries were newly infected with HIV during 2001.
Current Therapies
At present, two classes of products have received marketing approval from
the U.S. Food & Drug Administration (FDA), the agency that regulates new drug
approvals in the United States, 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 multi-drug 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, since these drug regimens often
require more than a dozen tablets to be taken at specific times each day. An
additional problem is
6
that currently approved drugs produce toxic side-effects in many patients,
affecting a variety of organs and tissues, including the peripheral nervous
system and gastrointestinal tract. These side-effects may result in patients
interrupting or discontinuing therapy.
PRO 542: HIV Therapy
We are developing PRO 542 for the treatment of HIV infection. PRO 542 is a
proprietary antibody-like 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 that we conducted in collaboration with
scientists at the Aaron Diamond AIDS Research Center and the Centers for
Disease Control and Prevention, PRO 542 neutralized a wide variety of clinical
strains of HIV as well as viruses from the blood of HIV-positive individuals.
In studies at ADARC, PRO 542 protected severe-combined-immune-deficient 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.
We completed two dose-escalation Phase I/II clinical trials of PRO 542 in
1999. Both trials were designed to measure the safety, pharmacokinetics,
immunogenicity, and antiviral activity of PRO 542. Pharmacokinetic studies
analyze how the body acts on a drug once the drug is administered and will
determine, for example, how long the drug persists in the body. Immunogenicity
studies analyze to what extent a patient's immune system mounts a response to
the drug, which could impair the drug's ability to have its desired
therapeutic effect and could, in some cases, have serious health consequences
to the patient. Immunogenicity can be a serious problem, particularly for
antibody-based drugs.
Our first dose-escalation clinical trial of PRO 542 was conducted in 15 HIV-
positive adult patients at Mount Sinai Medical Center in New York City.
Findings indicated peak and one-week serum concentrations of PRO 542 compared
favorably with preclinical models, approximating drug levels previously shown
to neutralize clinical HIV strains in vitro. Data from this trial demonstrated
that in patients receiving the highest dosage of PRO 542, infectious HIV was
reduced to undetectable levels for prolonged periods following treatment. Data
from this trial also indicated that administration of a single dose of PRO 542
was able to produce a statistically significant reduction in viral load in
patients treated with the highest dose. Viral load is the concentration of
virus nucleic acid, or genetic material, in the blood and is a widely used
indicator of infection levels. PRO 542 serum concentrations remained above HIV
inhibitory levels for greater than one week. In addition, PRO 542 was well
tolerated and non-immunogenic in all patients treated. We believe that these
results support expanded clinical testing of this agent as a potentially non-
toxic therapy for HIV infection.
The second dose-escalation Phase I/II clinical trial was 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, a leading cooperative HIV research group supported by
the National Institute of Allergy and Infectious Diseases. This trial was the
first time PRO 542 was tested on children or in multiple doses. All patients
treated demonstrated a decrease in viral load. Additionally, the drug was well
tolerated by all patients tested. During 2000 we initiated, in cooperation
with the Pediatric AIDS Clinical Trial Group (PACTG) of the National
Institutes of Health, a new Phase II trial to define the dose and frequency of
administration of PRO 452 for HIV-infected children, including those resistant
to available antiviral therapies. We are presently conducting Phase II
clinical trials of PRO 542 in adults and children.
We also determined in preclinical in vitro testing that the combination of
PRO 542 and T-20, another investigational drug being developed by Trimeris,
Inc. in collaboration with F. Hoffmann-La Roche Ltd., demonstrated
significantly enhanced anti-HIV activity in blocking the entry of HIV into
healthy cells. In further preclinical in vitro studies, it was also shown that
a "triple cocktail" of PRO 542, PRO 140 and T-20, each of which inhibits a
different step in the sequence of events leading to the entry of HIV into
targeted cells, acted synergistically to block HIV infection of healthy cells.
A scientific article regarding this research subsequently appeared in the
Journal of Infectious Diseases.
In October 2001, we announced the results of preclinical studies that
demonstrated that PRO 542 possesses potent antiviral activity when given by
multiple routes of administration, including subcutaneous injection. The
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studies demonstrated that PRO 542 reduced viral load to undetectable levels in
a well-recognized animal model of HIV infection and may point the way towards
simplified dosing regimens in man.
In addition, in June 2001, the Company entered into an agreement with
Formatech, Inc. whereby it engaged Formatech to assist in the development of
improved product formulations for subcutaneous and intramuscular delivery of
PRO 542. This agreement is subject to expansion based on the results and
successful completion of the first phase of the product formulation work.
In February 2000, we entered into a development and supply agreement with
Genzyme Transgenics Corporation, continuing the collaboration we commenced in
September 1997. The objective of this program is to develop a transgenic
source of PRO 542 using Genzyme Transgenics' proprietary technology. This
collaboration is designed to result in commercial-scale manufacture by
producing PRO 542 in the milk of transgenic goats. The expanded agreement was
entered into upon the successful outcome of transgenic feasibility studies
conducted by Genzyme Transgenics. During 2001, the first transgenic goats
containing the PRO 542 gene were born, and Genzyme Transgenics is in the
process of breeding transgenic animals that express sufficient concentrations
of the PRO 542 protein. The development of transgenic animals that express
adequate concentrations of PRO 542 to be commercially viable has taken longer
than initially anticipated. However, we believe that further pursuit of this
method of production is warranted.
In March 2002, we announced that PRO 542 produced a significant antiviral
response in HIV-infected individuals who were no longer responding to
currently available antiretroviral medications. In treatment-experienced
patients, a single dose of PRO 542 reduced viral concentrations by 60% to 80%
on average. In these clinical studies, PRO 542 was well tolerated and produced
statistically significant acute reductions in viral load in patients who
received a single 25 mg/kg intravenous infusion of the drug. These findings
extend previous studies of four intravenous doses ranging to 10 mg/kg. In
addition, an analysis of data from 22 adults treated with single-dose PRO 542
in a Phase I/II study identified a subgroup of patients who were the most
highly responsive to therapy. These patients were failing conventional
therapies and had evidence of advanced disease as measured by low numbers of
CD4 T cells (5200 cells/mm3) and/or high viral loads (4100,000 copies/mL)
before treatment with PRO 542. The viral load reductions in these patients
ranged from 0.4 to 0.8 log10 copies/mL, were dose-dependent, and were
sustained for two to four weeks. We expect to complete the Phase II clinical
program for PRO 542 in 2003.
PRO 140: HIV Therapy
In May 1999, we announced the development of a panel of proprietary anti-
CCR5 monoclonal antibodies created at Progenics and evaluated in collaboration
with the Aaron Diamond AIDS Research Center (ADARC). These antibodies are
designed to block the ability of HIV to infect cells isolated from healthy
individuals by inhibiting virus-cell fusion, an approach not targeted by
current HIV therapies. One murine monoclonal antibody, which we have
designated PRO 140, inhibited HIV infection at concentrations that had no
apparent effect on the normal function of CCR5. We believe that these
properties were correlated with PRO 140's ability to bind to a distinct site
on CCR5 that does not interfere with the normal receptor function of CCR5.
During 2000, we announced the findings from a preclinical study carried out
in collaboration with ADARC in which PRO 140 potently blocked each of 17
primary HIV isolates that use CCR5 as a fusion co-receptor. These viruses are
typical of those associated with person-to-person transmission of HIV and
predominate during the early stages of infection, when antiviral therapies
have proven to be most effective. PRO 140 was shown in these in vitro models
to be effective at protecting both primary T-cells and macrophages, immune
system cells that provide the major targets for HIV infection in vivo. We also
announced in 2000 the results of preclinical in vitro studies where it was
shown that a "triple cocktail" of PRO 542, PRO 140 and T-20, each of which
inhibits a different step in the sequence of events leading to the entry of
HIV into targeted cells, acted synergistically to potently block HIV infection
of healthy cells. T-20 is an investigational drug being developed by Trimeris,
Inc., in collaboration with F. Hoffmann-La Roche Ltd.
In January 2001, we announced the publication of a scientific article in the
Journal of Virology describing how PRO 140 demonstrated potent, broad-spectrum
antiviral activity against more than forty genetically diverse "primary" HIV
viruses isolated directly from infected individuals in vitro. In April 2001,
we announced that single doses of a murine-based PRO 140 reduced viral burdens
to undetectable levels in a well-recognized animal
8
model of HIV infection. In mice treated with PRO 140, initially high HIV
concentrations became undetectable for up to nine days after a dose of the
experimental drug.
In 2001, we also reported that we had elucidated the molecular basis for the
synergistic antiviral activity observed for HIV entry inhibitors PRO 542, PRO
140 and the fusion inhibitor T-20. T-20 is being developed by Trimeris, Inc.
and F. Hoffmann-La Roche Ltd. The multi-step nature of HIV entry into cells-
attachment, co-receptor binding, fusion-may leave the virus susceptible to
inhibition by combinations of drugs that act at different stages of the
process. In laboratory studies, the drug combinations provided a synergistic
activity whereby actions of the first drug (PRO 542 or PRO 140) temporarily
immobilizes the virus and "holds" it in a way that makes it more susceptible
to the second drug (PRO 140 or T-20). Preclinical studies also demonstrated
that HIV failed to develop resistance to PRO 140 despite 40 weeks of continued
exposure to the drug. This period is considerably longer than that required
for HIV to develop resistance to other classes of antiviral agents in similar
laboratory studies.
In December 2001, we reported that multiple doses of PRO 140 reduced and
then maintained viral loads at undetectable levels for the duration of therapy
in an animal model of HIV infection. Sustaining undetectably low levels of
virus in the blood is a primary goal of HIV therapy.
Effective April 1999, we entered into a development and license agreement
with Protein Design Labs, Inc. (PDL), for the development of a humanized
version of PRO 140 that retains the antibody's antiviral activity but which is
more suitable for chronic use in humans. In February 2002, we announced that
we had selected a humanized form of the PRO 140 antibody for clinical testing.
Unlike its mouse-based predecessor, humanized PRO 140 is designed to be
suitable for repeat dosing in humans. Humanization of the PRO 140 monoclonal
antibody was accomplished under a collaborative agreement with PDL. We expect
to file an Investigational New Drug Application with the U.S. FDA for
humanized PRO 140 and enter Phase I/II clinical trials in 2003.
Small-Molecule Drugs
Co-Receptor/Fusion: HIV Therapy
Our HIV co-receptor programs are based on the CCR5 and CXCR4 co-receptors
and the important role these molecules play in virus-to-cell fusion and
subsequent viral replication. CCR5 and CXCR4 belong to a larger family of
cellular receptors, known as 7-transmembrane G-protein-coupled receptors.
These receptors have been successfully exploited as targets by commercialized
therapeutic drugs addressing a wide range of human diseases. Additionally,
studies have indicated that a naturally occurring genetic mutation that
disables the CCR5 co-receptor prevents HIV infection without compromising
immune function. For these reasons, we believe that our co-receptor/fusion
technology offers significant commercial opportunities.
In March 2000, we entered into a research and license agreement with
Pharmacopeia, Inc. to discover small molecule HIV therapeutics that block the
attachment of the virus to its primary cellular receptor, CD4. This agreement
expanded on a collaboration with Pharmacopeia commenced in September 1997.
Under the terms of this agreement, we will provide proprietary CD4 attachment
assays and expertise related to the interaction between HIV and CD4, and
Pharmacopeia will engage in a screening program of its internal compound
library. In August 2000, we expanded our collaboration with Pharmacopeia to
add two additional programs, including one program directed to the HIV
envelope glycoprotein gp41. Under the terms of the Agreement we are entitled
to an exclusive, royalty-bearing license to active compounds identified in
these programs.
In November 2001, we were awarded approximately $600,000 from the National
Institutes of Health (NIH) for the development of novel inhibitors of HIV
entry and infection. Entry inhibitors are a promising new class of HIV drugs
that may offer significant benefits in both safety and efficacy over currently
available HIV therapies. The grant supports an ongoing collaboration between
Progenics and Pharmacopeia, Inc. to develop orally available small-molecule
inhibitors of the HIV envelope glycoprotein gp41, which mediates fusion and
entry of HIV into cells of the human immune system. The project combines
Pharmacopeia's proprietary, high-throughput assays with screening technologies
developed at Progenics for identifying fusion inhibitors. Pharmacopeia has
utilizing these technologies to screen its libraries of several million novel,
drug-like compounds, and screening of other libraries is underway for other
undisclosed targets.
9
We have developed proprietary fusion assays based on our HIV co-receptor
technology. These assays model fusion of HIV with human cells rapidly,
automatically, sensitively and without the use of infectious virus. In
December 1997, we entered into a collaboration with the Roche Group of Basel,
Switzerland to use these assays to discover and develop small-molecule HIV
therapeutics that target the fusion co-receptors, including CCR5 and CXCR4.
Under the terms of the collaboration, we granted to Roche an exclusive
worldwide license to our HIV co-receptor technology. Roche made an up-front
payment and a milestone payment and is obligated to make further milestone
payments, fund research and pay royalties on the sale of any products
commercialized as a result of the collaboration.
In February 2002, we reported the identification of small-molecule CCR5
inhibitors with novel antiviral properties, which were identified in
collaboration with the Roche Group, using our proprietary approach to
identifying CCR5 inhibitors. The compounds potently and specifically blocked
HIV entry in multiple laboratory studies. In addition, these compounds had
little or no effect on the normal function of CCR5.
In March 2002, Roche exercised its right to discontinue funding the research
being conducted under this Agreement and we are in discussions with Roche to
determine the future development program for the compounds identified during
the four years of collaborative effort.
Sulfated Peptides
In collaboration with ADARC, we have identified specific naturally-occurring
chemical modifications to CCR5 that govern its binding to HIV. Synthetic
peptides incorporating these modifications potently blocked the binding of HIV
to CCR5 on the cell surface. The modified CCR5 co-receptor peptides also
inhibited certain HIV strains from entering target cells in vitro. The
modified CCR5 co-receptor peptides may constitute a new class of HIV fusion
inhibitors and also may provide a tool for identifying small-molecule drugs
that target CCR5. Continuing our preclinical work on these modified CCR5
peptides with our academic collaborators at Albert Einstein College of
Medicine, we have identified the specific binding site for HIV on CCR5.
In February 2001, we selected a lead therapeutic sulfated CCR5 peptide for
further drug development. We also announced the publication of a scientific
article describing how sulfated CCR5 peptides mimic the CCR5 receptor, a
structure used by the virus to infect cells. Sulfated CCR5 peptides attach to
HIV in a way that specifically inhibits the binding of the virus to human
immune system cells. Sulfated CCR5 peptides target a region on the virus that
does not appear to vary across different strains of HIV, suggesting that such
molecules might be broadly active against diverse strains of the virus,
including those resistant to conventional therapies. In laboratory studies, a
sulfated CCR5 peptide that was only nine amino acids long represented the
minimum or core structure recognized by HIV in its bid to gain entry into a
cell. The findings were reported by scientists from Progenics and the Albert
Einstein College of Medicine, Bronx, NY, and were reported in the Journal of
Virology.
ProVax: HIV Vaccine
We are conducting research with respect to our ProVax vaccine, a vaccine
candidate which we believe may be useful as a prophylactic for uninfected
individuals and/or as a therapeutic treatment for HIV-positive individuals. We
are currently performing government-funded research and development of the
ProVax vaccine in collaboration with the Cornell University Medical Center.
Cancer Immunotherapy
Cancer is a category of 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 the
elimination of cancer cells by the immune system. Eradication of malignant
cells that can metastasize, or spread, to vital organs, leading to death, is
central to the effective treatment of cancer.
Despite recent advances in treatment, therapies for many types of cancer
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 both occult, or hidden, and
residual disease is difficult or impossible to eliminate fully, which can lead
to relapse.
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Ganglioside Conjugate Vaccines
Our cancer vaccine programs, GMK and MGV, involve 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. Therefore, these
gangliosides represent targets for cancer immunotherapy.
Our cancer vaccines use known amounts of chemically defined antigens, not
dead cancer cells or crude extracts from cancer cells. As a result, we are
able to measure specific immune responses to each of the gangliosides used in
our vaccines. We also believe that there is a reduced likelihood of
variability in our products which greatly simplifies the manufacturing
processes.
Because gangliosides alone do not normally trigger an immune response in
humans, we attach 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, we add an
immunological stimulator, known as an "adjuvant," to our ganglioside-carrier
protein conjugate.
Our 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 the in vitro results
and the clinical trial results described below, we believe that vaccination of
cancer patients with ganglioside conjugate vaccines may delay or prevent
recurrence of cancer and prolong overall survival.
GMK: Therapeutic Vaccine for Malignant Melanoma
Our most clinically advanced product under development is GMK, a proprietary
therapeutic vaccine for melanoma that is currently in two pivotal Phase III
clinical trials. GMK, which is the first cancer vaccine based on a defined
cancer antigen to enter Phase III clinical trials, 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, or KLH, and combined with the adjuvant QS-21. QS-21
is a compound in the StimulonTM family of adjuvants developed and owned by
Aquila Biopharmaceuticals, Inc., a wholly owned subsidiary of Antigenics, Inc.
In May 2001, we announced our joint decision with Bristol-Myers Squibb
Company to end our GMK and MGV cancer vaccine collaborative development
agreement originally formed in July 1997. Upon such termination, the licenses
granted to BMS were terminated and we reacquired full control and
responsibility for our development programs for these vaccines, as well as a
one time payment of $9.8 million.
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 can spread to the lungs, liver, brain and other organs. The
National Cancer Institute (NCI) estimated that in 1999 there were 480,000
melanoma patients in the United States. The American Cancer Society estimates
that there will be 53,600 new cases of melanoma diagnosed in the U.S. in 2002.
Melanoma accounts for 4% of skin cancer cases, but 79% of skin cancer deaths.
Melanoma has one of the fastest growing incidence rates of any cancer in the
United States. Increased exposure to the ultraviolet rays of the sun may be an
important factor contributing to the increase in new cases of melanoma.
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Melanoma patients are categorized according to the following staging system:
Melanoma Staging
Stage I Stage II Stage III Stage IV
------- -------- --------- --------
lesion less than 1.5 mm thickness lesion greater than metastasis to regional distant metastasis
1.5 mm thickness draining lymph nodes
no apparent metastasis local spread from regional spread from
primary cancer site primary cancer site
GMK is being developed for the treatment of patients with Stage II or Stage
III melanoma. The American Cancer Society estimates that approximately 50% of
new melanoma patients are diagnosed with Stage II or Stage III melanoma and
that approximately half of all Stage III melanoma patients will experience
recurrence of their cancer and die within five years after surgery.
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. However, treatment with high-dose
alpha-interferon causes substantial toxicities, requires an intensive
treatment over twelve months (intravenous administration five-days-a-week for
the first month followed by subcutaneous injections three-times-a-week for the
remaining eleven months) and costs approximately $35,000 for the drug alone.
Other approaches for treatment of Stage II or III melanoma patients are
currently under investigation, but none has been approved for marketing in the
U.S. These experimental therapies include chemotherapy, low-dose alpha-
interferon, and other vaccines.
Clinical Trials
GMK entered a pivotal Phase III clinical trial in the United States in
August 1996. A pivotal clinical trial is one that is designed to produce
results sufficient to support regulatory approval. GMK was administered in
this study on an out-patient basis by 12 subcutaneous injections over a two-
year period. In May 2001, we initiated in Europe a large international Phase
III clinical trial of the GMK vaccine. In this study patients recruited from
Europe as well as Australia are randomized after surgery to receive either GMK
or the current standard of care, which is no treatment but close monitoring.
Patients on the vaccine arm of this study will receive 14 doses of GMK over
three years, with an estimated two years of additional follow-up.
The ongoing U.S. Phase III clinical trial compares GMK with high-dose alpha-
interferon in Stage IIb (advanced Stage II) and Stage III melanoma patients
who have undergone surgery but are at high risk for recurrence. This
randomized trial, which exceeded its targeted enrollment of 851 patients by
September 1999, has been 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 U.S. trial is a comparison of the recurrence of melanoma in patients
receiving GMK versus patients receiving high-dose alpha-interferon.
Additionally, the study is designed to compare quality of life and overall
survival of patients in both groups.
In May 2000, as a result of an unplanned early analysis of a subset of the
880 patients enrolled in the trial, ECOG recommended to clinical investigators
participating in the trial that they discontinue administering GMK. ECOG's
decision was based on its early analysis of data from the subset group which,
according to ECOG, showed that the relapse-free and overall survival rates for
patients receiving the GMK vaccine were lower than for patients receiving
high-dose alpha-interferon.
We believe ECOG's action was premature. At the time of the ECOG action, many
of the patients had not yet completed their full course of therapy with GMK.
Since the onset of biological activity for the GMK vaccine
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appears later than that of alpha-interferon, which is given in high doses over
a shorter time period, we believe that in the longer term the benefits of GMK
to melanoma patients may be demonstrated. In addition, the analysis conducted
by ECOG indicated that GMK was better tolerated and had five times less
frequent and much less severe side effects than high-dose alpha-interferon.
Based on these considerations, we are continuing this trial as an extension
study until the scheduled completion of the trial. ECOG is assisting us in
continued patient follow-up and data compilation, and we anticipate analyzing
the results from this study in 2002.
In May 2001, we initiated of a large international Phase III clinical trial
of the GMK vaccine to prevent the relapse of malignant melanoma, the deadliest
form of skin cancer. The study is being conducted with the EORTC (European
Organization for Research and Treatment of Cancer), Europe's leading cancer
cooperative group. The EORTC Phase III trial expects to enroll 1,300 patients
who are at intermediate risk for recurrence of the disease. The study is
recruiting patients from Europe as well as Australia. EORTC will randomize
patients after surgery to receive either GMK or the current standard of care,
which is no treatment but close monitoring. Patients on the vaccine arm of the
study will receive 14 doses of GMK over three years, with an estimated two
years of additional follow-up. The primary endpoint of this 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. Given the size and duration of
this trial, results are not anticipated for several years.
MGV: Therapeutic Vaccine for Certain Cancers
Our 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 and neuroblastoma. MGV has three
components: (i) GM2-KLH, or GM2 ganglioside conjugated to KLH; (ii) GD2-KLH,
or 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. In May 2001, we reacquired all rights to
MGV from Bristol Myers Squibb Company.
Target Market
MGV targets cancers that the American Cancer Society estimated had an
aggregate incidence in the United States of over 250,000 new cases during
2000. The American Cancer Society also estimated that more than 135,000
persons died from these targeted cancers, representing nearly 25% of all
deaths from cancer during 2000.
Clinical Trials
MGV completed a Phase I/II clinical trial in 2000 under an institutional IND
at Memorial Sloan-Kettering Cancer Center (MSKCC). The primary objectives of
the study were 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. In addition, a goal of the study was to
find the best ratio of GD2 and GM2 gangliosides in MGV to be used in future
clinical trials.
In this clinical trial, 31 patients with high-risk melanoma and sarcoma were
immunized with MGV over a period of nine months. Patients were randomly
assigned to five groups receiving a fixed dose of GM2-KLH and QS-21 adjuvant
and one of a number of escalating doses of GD2-KLH. In January 2001, we
announced publication of MGV clinical trial results in the journal Clinical
Cancer Research. This study showed that the combination of GM2-KLH/GD2-KLH/QS-
21 could produce antibodies to GM2 and GD2 and was well-tolerated.
Specifically, MGV induced antibodies to the GM2 ganglioside in 97% of
patients. In addition, 91% of patients who received an optimal dose of the
vaccine also developed antibodies to GD2. We previously reported that anti-
ganglioside antibodies taken from vaccinated patients kill tumor cells in
vitro. The study demonstrated that for the first time in cancer patients that
it is possible to induce antibody responses to two gangliosides using a
bivalent vaccine. Additional Phase I/II studies are ongoing at MSKCC
evaluating an optimized GD2 vaccine component.
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PSMA
Prostate cancer is the most common form of cancer affecting U.S. males and
is the second leading cause of cancer deaths in men each year. The American
Cancer Society estimates that 30,200 men will die from prostate cancer, and
189,000 new cases will be diagnosed in 2002. Conventional therapies include
radical prostectomy, in which the prostate gland is surgically removed,
radiation and hormone therapies, chemotherapy and "watchful waiting." Surgery
and radiation therapy are associated with urinary incontinence and impotence.
Hormone therapy and chemotherapy are generally not intended to be curative and
are not actively used to treat localized, early-stage prostate cancer.
Through the PSMA Development Company LLC (the "Joint Venture"), our joint
venture with Cytogen Corporation, we are engaged in a research and development
program relating to vaccine and antibody immunotherapeutics based on Prostate
Specific Membrane Antigen ("PSMA"). PSMA is a protein that is abundantly
expressed on the surface of prostate cancer cells, but not normal cells. We
believe this antigen may have applications in immunotherapeutics for prostate
cancer and potentially for other types of cancer. In December 2001, the Joint
Venture announced that it had identified the molecular structure of PSMA, a
finding which may have fundamental implications for development of prostate
cancer immunotherapies.
In September 2000, we announced the selection for development of a new PSMA
vaccine, comprised of a genetically engineered, or recombinant, form of the
PSMA protein and a potent immunological stimulant, or adjuvant, and designed
to stimulate a patient's immune response system to recognize and destroy
prostate cancer cells. We expect to commence a Phase I/II clinical trial in
2002 on this therapeutic vaccine candidate.
We are also pursuing, in parallel, a vaccine strategy that utilizes novel
and proprietary viral vectors designed to deliver the PSMA gene to the immune
system in order to generate potent and specific immune responses to the
prostate cancer cells. PSMA-based immunotherapy is designed to destroy cancer
cells while sparing healthy tissue. In September 2001, the Joint Venture
entered into a worldwide exclusive licensing agreement with AlphaVax Human
Vaccines, Inc., to use the AlphaVax Replicon Vector (ArV2) system to create a
therapeutic prostate cancer vaccine incorporating the PSMA antigen.
Preclinical studies of this viral-vector prostate cancer vaccine generated a
potent dual-immune response against PSMA, yielding both antibodies and killer
T cells, the two principal mechanisms used by the immune system to eliminate
abnormal cells. We are completing our preclinical development activities on
the PSMA ArV vaccine in anticipation of Phase I/II clinical studies in 2003.
In November 2000, the Joint Venture announced the development of a new
generation of novel murine monoclonal antibodies which identify and bind to
the three-dimensional structure of PSMA as presented on cancer cells. These
antibodies represent potentially excellent candidates for therapy development
since they possess a higher affinity and specificity for PSMA than antibodies
which do not recognize the physical structure of the target antigen.
In March 2001, the Joint Venture entered into a collaboration with Abgenix,
Inc. to use the company's XenoMouse technology for generating fully human
antibodies to PSMA and announced the successful creation of these human
antibodies to PSMA. Clinical trials in prostate cancer patients of a human
monoclonal antibody to PSMA are scheduled to begin in 2003.
Through the Joint Venture, we are in preclinical development of therapies
based on "naked," radiolabelled, and toxin-conjugated forms of these
antibodies designed to selectively target and destroy PSMA-expressing cancer
cells.
Stroke: DHA
In February 1999, we licensed from Memorial Sloan-Kettering Cancer Center
patent rights and technology relating to a derivative of vitamin C called
dehydroascorbic acid, or DHA. We have obtained exclusive worldwide rights to
use DHA for treatment of disease involving oxidative damage to tissue,
including tissues of the central nervous system.
Antioxidants are compounds that act as scavengers of free radicals - highly
unstable molecules that play a role in certain diseases that damage tissue.
Studies have shown that antioxidants can slow the progression of degenerative
neurological diseases, such as Alzheimer's disease. Vitamin C is a potent
antioxidant, but does not
14
easily cross from the circulatory system into the brain. David W. Golde, M.D.
of Memorial Hospital and his colleagues at Sloan-Kettering have shown that DHA
readily crosses the blood-brain barrier and, once in the brain, is converted
into vitamin C. As a result of these properties, we believe that DHA is a
promising drug candidate for a broad range of neurodegenerative diseases
caused by oxidative stress, such as ischemic stroke.
In preclinical studies conducted during 2000 in an animal model of human
stroke, DHA demonstrated significant dose-dependent decreases in brain damage,
neurological deficits, and death caused by stoke. In other preclinical
testing, DHA has shown promise as a topical treatment for oral mucositis, a
disease characterized by inflammation and ulceration of the lining of the
mouth attributable to cancer chemotherapy or radiation therapy.
In May 2001, we announced that DHA significantly decreased brain damage and
neurological deficits when administered as long as three hours after a stroke
in an animal model. We are currently conducting additional proof-of-concept
studies to complete the preclinical development program.
In 2001, we were awarded approximately $300,000 from the National Institutes
of Health (NIH) for the development of DHA as a therapy for ischemic stroke.
The award was a Phase I Small Business Innovation Research (SBIR) grant. The
grant will support continued preclinical efficacy studies, early manufacturing
scale-up, and formulation development.
Corporate Collaborations
Bristol-Myers Squibb Company
In May 2001, we announced our joint decision with Bristol-Myers Squibb
Company to end our GMK and MGV cancer vaccine collaborative development
agreement originally formed in July 1997. Upon such termination, the licenses
granted to BMS were terminated and we reacquired full control and
responsibility for our development programs for these vaccines, as well as a
one time payment of $9.8 million.
Roche Group
In December 1997, we entered into a collaboration agreement with the Roche
Group of Basel, Switzerland to discover and develop novel HIV therapeutics
that target the fusion co-receptors CCR5 and CXCR4. This collaboration, among
other things, provided for Roche to apply its library of small-molecule
compounds to our original screening assays in order to identify inhibitors of
the interaction between HIV co-receptors and HIV. This program is in the early
stage of drug discovery.
Under the terms of the Roche agreement, we have granted to Roche a license
covering products to which we have 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 we have retained rights. Pursuant to this license,
Roche has an exclusive worldwide right to develop, make, have made, use, sell,
offer to sell and import any covered products for the therapy of HIV
infection. Subject to specified restrictions, Roche retains the right to grant
sublicenses under the Roche agreement. The term of the license continues until
the expiration of all obligations to pay royalties and then converts to a
fully paid license.
Pursuant to the Roche agreement, Roche made an up-front payment and a
milestone payment and is obligated to make further milestone payments, fund
research and pay royalties on the sale of any products commercialized as a
result of the collaboration. We are also entitled to contingent licensing
rights. This research collaboration had an original term of three years and
was subsequently extended for two additional years by mutual agreement. In
March 2002, Roche exercised its right to discontinue funding the research
being conducted under this Agreement and we are in discussions with Roche to
determine the future development program for the compounds identified during
the four years of collaborative effort.
Cytogen Corporation
We have entered into a joint venture collaboration with Cytogen Corporation
to develop vaccine and antibody-based immunotherapeutic products based on
Prostate Specific Membrane Antigen. This collaboration is
15
a joint venture structured in the form of a mutually owned limited liability
company. All patents and know how currently owned or acquired in the future by
Progenics or Cytogen and useful in the development of PSMA-based antibody or
vaccine immunotherapeutics have been licensed to the joint venture. The
principal intellectual property licensed initially are several patents and
patent applications owned by Sloan-Kettering that cover PSMA. By the terms of
the agreement, we are responsible for preclinical and clinical development,
and Cytogen is principally responsible for product marketing. In addition, we
have certain co-promotion rights. The license agreement terminates on the last
to expire or terminate of any licensable rights to patents or patent
applications licensed by Progenics or Cytogen to the joint venture.
The joint venture aspects of the collaboration are governed by a limited
liability company agreement. This agreement provides generally for joint
management. The agreement also provided for our payment of not more than $3.0
million of the initial research and development funding and $2.0 million in
payments the joint venture is required to pay Cytogen over time. Any other
funding obligations are to be shared 50/50, with voting and ownership dilution
resulting if a party fails to fund its share. We and Cytogen reached a
mutually satisfactory agreement with respect to the resolution of a dispute
related to the timely reacquisition on behalf of the Joint Venture of certain
rights from a third party, which we had reported last year.
Genzyme Transgenics Corporation
We have entered into a collaboration with Genzyme Transgenics to develop a
transgenic source of the PRO 542 molecule. Under this agreement, Genzyme
Transgenics has engaged in a program designed to result in the establishment
of a line of transgenic goats capable of expressing the molecule in lactation
milk. We are obligated to pay Genzyme Transgenics certain fees to conduct the
program as well as additional fees upon the achievement of specified
milestones. If the program is successful, we may elect to enter into a further
agreement for production by Genzyme Transgenics of commercial-scale quantities
of the molecule, the principle terms of which have been agreed upon.
Formatech, Inc.
In June 2001, the Company entered into a collaborative agreement with
Formatech, Inc. to develop improved product formulations for PRO 542. The
Company is obligated to pay Formatech certain fees for the conduct of its
activities under the program, which is subject to expansion based on the
results of the first phase of the work. The Formatech agreement may be
terminated by us upon 30 days prior written notice.
Pharmacopeia, Inc.
In March 2000, we entered into a research and license agreement with
Pharmacopeia, Inc. to discover small molecule HIV therapeutics that block the
attachment of the virus to its primary cellular receptor, CD4. This agreement
expanded a collaboration with Pharmacopeia commenced in September 1997. Under
the terms of the new agreement, we have provided proprietary CD4 attachment
assays and expertise related to the interaction between HIV and CD4 and
Pharmacopeia is engaging in a screening program of its internal compound
library. In August 2000, we expanded our collaboration with Pharmacopeia
further to add two additional programs, including one program directed to the
HIV envelope glycoprotein gp41. Pharmacopeia has utilizing these technologies
to screen its libraries of several million novel, drug-like compounds, and
screening of other libraries is underway for other undisclosed targets. We
will be granted a license to active compounds identified in the program. We
are obligated to pay Pharmacopeia fees for its screening programs as well as
additional amounts upon the achievement of specified milestones and royalties
on any sales of therapeutics marketed as a result of the collaboration.
Licenses
We are a party to license agreements under which we have obtained rights to
use certain technologies in our cancer and HIV programs, as well as certain
other human therapeutics. Set forth below is a summary of these licenses.
Sloan-Kettering. We are party to a license agreement with Sloan-Kettering
under which we obtained the worldwide, exclusive rights to certain technology
relating to ganglioside conjugate vaccines, including GMK and
16
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 Progenics. We are also a party to a
license agreement with Sloan-Kettering under which we obtained an exclusive,
worldwide license to certain patent rights relating to DHA. The license
continues for 20 years or to the end of the term for which the patent rights
are granted.
Regents of the University of California. We are party to a license
agreement with the Regents of the University of California under which we
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.
Columbia University. We are party to a license agreement with Columbia
University under which we 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.
Aquila Biopharmaceuticals. We have entered into a license and supply
agreement with Aquila Biopharmaceuticals, Inc., a wholly owned subsidiary of
Antigenics, Inc., pursuant to which Aquila agreed to supply us with all of our
requirements for the QS-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.
Protein Design Labs. We have entered into a development and license
agreement with PDL for the humanization by PDL of PRO 140. Pursuant to the
agreement PDL granted us certain exclusive and nonexclusive worldwide licenses
under relevant patents, patent applications and know how covering or relating
to the humanized PRO 140. The licensing agreement terminates on the later of
ten years from the first commercial sale or the last date on which there is an
unexpired patent or a patent application that has been pending for less than
ten years. Thereafter the license is fully paid up.
UR Labs, Inc. In October 2001, we entered into an agreement with UR Labs,
Inc. (the "URL Agreement") to obtain worldwide exclusive rights to
methylnaltrexone (MNTX), an investigational drug in late-stage clinical
development. UR Labs has exclusively licensed MNTX from the University of
Chicago, where it was discovered. In consideration for the license, we paid a
nonrefundable, noncreditable license fee and are obligated to pay additional
payments upon the occurrence of certain defined milestones associated with the
MNTX product development and commercialization program. In addition, we are
required to pay royalties based upon net sales of the licensed products,
subject to certain set off rights of the Company and the right of the Company
to buy-down the royalty rate under defined circumstances. The URL Agreement
may be terminated under specified circumstances that include the Company's
failure to achieve certain milestones; however the consent of UR Labs to
revisions to the due dates for the milestones shall not be unreasonably
withheld under certain circumstances. If not terminated early, the URL
Agreement continues until the later of the expiration of the UR Labs patents
or the defined period.
Abgenix, Inc. In February 2001, the Joint Venture entered into a worldwide
exclusive licensing agreement with Abgenix, Inc. (the "ABX Agreement"), to use
Abgenix' XenoMouse technology (the "XenoMouse Technology") for generating
fully human antibodies to the Joint Venture's proprietary PSMA antigen. In
consideration for the license, the Joint Venture paid a nonrefundable,
noncreditable license fee and is obligated to pay additional payments upon the
occurrence of certain defined milestones associated with the development and
commercialization program for products incorporating an antibody generated
utilizing the XenoMouse Technology (the "Antibody Products"). In addition, the
Joint Venture is required to pay royalties based upon net sales of the
Antibody Products, subject to certain set off rights of the Company under
defined circumstances. The ABX Agreement may be terminated, after an
opportunity to cure, by Abgenix for cause upon 30 days prior written notice.
If not terminated early, the ABX Agreement continues until the later of the
expiration of the XenoMouse Technology patents or defined period. The Company
has the right to terminate the ABX Agreement upon 30 days prior written
notice.
17
AlphaVax Human Vaccines, Inc. In September 2001, through the Joint Venture
we entered into a worldwide exclusive licensing agreement with AlphaVax Human
Vaccines, Inc. (the "AVX Agreement"), to use the AlphaVax Replicon Vector
(ArV(TM)) system (the "AVRV System") to create a therapeutic prostate cancer
vaccine incorporating the Joint Venture's proprietary PSMA antigen. In
consideration for the license, the Joint Venture paid a nonrefundable,
noncreditable license fee and is obligated to pay additional payments upon the
occurrence of certain defined milestones associated with the development and
commercialization program for products incorporating the AVRV System (the
"Products"). In addition, the Joint Venture is required to pay royalties based
upon net sales of the Products, subject to certain set off rights of the Joint
Venture under defined circumstances. The AVX Agreement may be terminated,
after an opportunity to cure, by AlphaVax under specified circumstances that
include the Joint Venture's failure to achieve certain milestones; however the
consent of AlphaVax to revisions to the due dates for the milestones shall not
be unreasonably withheld. If not terminated early, the AVX Agreement continues
until the later of the expiration of the AVRV System patents or defined
period. The Joint Venture has the right to terminate the AVX Agreement upon 30
days prior written notice.
The licenses to which we are a party impose various milestone,
commercialization, sublicensing, royalty and other payment, insurance,
indemnification and other obligations on us and are subject to certain
reservations of rights. Our or the Joint Venture's failure to comply with
these requirements could result in the termination of the applicable
agreement, which would likely cause us to terminate the related development
program and cause a complete loss of our investment in that program.
Patents and Proprietary Technology
Our policy is to protect our proprietary technology, and we consider the
protection of our rights to be important to our business. In addition to
seeking U.S. patent protection for many of our inventions, we generally file
patent applications in Canada, Japan, 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 our foreign business.
Currently our patent portfolio protecting our proprietary technologies in the
HIV, cancer and palliative care areas is comprised on a worldwide basis of 62
patents that are issued or allowed and 127 pending patent applications.
Under a license agreement with Sloan-Kettering, we 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 United States 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, we 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. We have also
filed a number of U.S. and foreign patent applications on our HIV attachment
assay technology, our technology directed to PRO 542, our ProVax technology
and clinical uses of these technologies. We have also filed a number of U.S.
and foreign patent applications, one of which is owned jointly with the Aaron
Diamond AIDS Research Center, relating to the discovery of an HIV co-receptor,
CCR5.
Under a license agreement with Sloan-Kettering, we obtained worldwide
exclusive rights to certain technology relating to dehydroascorbic acid and
its use to increase the concentration of vitamin C in tissues, including the
brain, for treating neurodegenerative and neurovascular diseases. This
technology is the subject of a patent application filed by Sloan-Kettering in
the United States and as an international application claiming methods for
increasing the vitamin C concentration in the cells of a subject by
administering to the subject dehydroascorbic acid.
Under a license agreement with UR Labs, Inc., we obtained worldwide
exclusive rights to certain technology relating to methylnaltrexone and its
use to treat and reverse certain debilitating side effects of opioid
18
pain medications. This technology is the subject of issued U.S. and European
patents and several related U.S. and foreign patent applications filed by the
University of Chicago.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade has resulted in certain changes to U.S. 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 U.S. 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 our patent position.
The research, development and commercialization of a biopharmaceutical often
involves alternative development and optimization routes, which are presented
at various stages in the development process. The preferred routes cannot be
predicted at the outset of a research and development program because they
will depend on subsequent discoveries and test results. There are numerous
third-party patents in our field, and it is possible that to pursue the
preferred development route of one or more of our products we will need to
obtain a license to a patent, which would decrease the ultimate profitability
of the applicable product. If we cannot negotiate a license, we might have to
pursue a less desirable development route or terminate the program altogether.
Government Regulation
Progenics and our products are subject to comprehensive regulation by the
Food and Drug Administration in the 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 our
products. None of our product candidates has received marketing or other
approval from the FDA or any other similar regulatory authority.
FDA approval of our products, including a review of the manufacturing
processes and facilities used to produce such products, will be required
before such products may be marketed in the United States. The process of
obtaining approvals from the FDA can be costly, time consuming and subject to
unanticipated delays. We cannot assure you that approvals of our proposed
products, processes, or facilities will be granted on a timely basis, or at
all. If we experience delays in obtaining, or do not obtain, approvals for our
products, commercialization of our products would be slowed or stopped.
Moreover, even if we obtain regulatory approval, the approval may include
significant limitations on indicated uses for which the product could be
marketed or other significant marketing restrictions.
The process required by the FDA before our products may be approved for
marketing in the United States generally involves:
o preclinical laboratory and animal tests;
o submission to the FDA of an investigational new drug application, or IND,
which must become effective before clinical trials may begin;
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product for its intended indication;
o submission to the FDA of a marketing application; and
o FDA review of the marketing application in order to determine, among
other things, whether the product is safe and effective for its intended
uses.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information about a product's pharmacology
and toxicology and to identify any safety problems that would preclude testing
in humans. Products must generally be manufactured according to current Good
Manufacturing Practices, and preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding good laboratory
practices. The results of the preclinical tests are submitted to the FDA as
part of an
19
IND. 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:
o a description of the sponsor's investigational plan;
o protocols for each planned study;
o chemistry, manufacturing, and control information;
o pharmacology and toxicology information; and
o a summary of previous human experience with the investigational drug.
Unless the FDA objects to, 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. We cannot assure you
that submission of an IND will result in FDA authorization to commence
clinical trials.
A New Drug Application, or NDA, is an application to the FDA to market a new
drug. The NDA must contain, among other things:
o information on chemistry, manufacturing, and controls;
o non-clinical pharmacology and toxicology;
o human pharmacokinetics and bioavailability; and
o clinical data.
The new drug may not be marketed in the United States until the FDA has
approved the NDA.
A Biologic License Application, or BLA, is an application to the FDA to
market a biological product. The BLA must contain, among other things, data
derived from nonclinical laboratory and clinical studies which demonstrate
that the product meets prescribed standards of safety, purity and potency, and
a full description of manufacturing methods. The biological product may not be
marketed in the United States until a biologic license is issued.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with
the FDA's Good Clinical Practice requirements under protocols that detail,
among other things, the objectives of the study, the parameters to be used to
monitor safety, and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an Institutional Review Board. The
Institutional Review Board will consider, among other things, ethical factors,
the safety of human subjects, the possible liability of the institution and
the informed consent disclosure which must be made to participants in the
clinical trial.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. During Phase 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:
o evaluate preliminarily the efficacy of the product for specific, targeted
indications;
o determine dosage tolerance and optimal dosage; and
o 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 BLA, approval of
20
which must be obtained prior to commencement of commercial sales. The FDA may
refuse to accept the application for filing if certain administrative and
content criteria are not satisfied, and even after accepting the application
for review, the FDA may require additional testing or information before
approval of the application. Our analysis of the results of our clinical
studies is subject to review and interpretation by the FDA, which may differ
from our analysis. We cannot assure you that our data or our interpretation of
data will be accepted by the FDA. In any event, the FDA must deny an NDA or
BLA if applicable regulatory requirements are not ultimately satisfied. In
addition, 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.
Both before and after approval is obtained, a product, its manufacturer, and
the sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at
any stage, including the preclinical and clinical testing process, the
approval process, or thereafter, may result in various adverse consequences,
including FDA delay in approving or refusal to approve a product, withdrawal
of an approved product from the market or the imposition of criminal penalties
against the manufacturer or sponsor. In addition, later discovery of
previously unknown problems may result in restrictions on such product,
manufacturer, or sponsor, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or
prevent regulatory approval of our products under development.
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable government regulatory authorities in foreign countries
must be obtained prior to marketing such product in such countries. The
approval procedure varies from country to country, and the time required may
be longer or shorter than that required for FDA approval. Although there are
some procedures for unified filing for certain European countries, in general,
each country has its own procedures and requirements. We do not currently have
any facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and various other present and potential future federal, state
or local regulations. Our research and development involves the controlled use
of hazardous materials, chemicals, viruses and various radioactive compounds.
Although we believe that our safety procedures for storing, handling, using
and disposing of such materials comply with the standards prescribed by
applicable regulations, we cannot completely eliminate the risk of accidental
contaminations or injury from these materials. In the event of such an
accident, we could be held liable for any legal and regulatory violations as
well as damages that result. Any such liability could have a material adverse
effect on Progenics.
Manufacturing
We currently manufacture PRO 542, PRO 140, GMK, MGV and PSMA protein
vaccines in our 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. We believe that our existing production
facilities will be sufficient to meet our initial needs for clinical trials.
However, these facilities may be insufficient for all of our late-stage
clinical trials and would be insufficient for commercial-scale requirements.
We may be required to expand our manufacturing staff and facilities, obtain
new facilities or contract with third parties or corporate collaborators to
assist with production.
We currently rely on single source third party manufacturers for the supply
of both bulk and finished form methylnaltrexone. While we believe that our
existing arrangements with such single source third party manufacturers are
stable, reliable and adequate for the balance of our clinical trial and
initial commercial supply requirements, we are actively engaged in a program
to further solidify and expand such relationships, as well as to identify
additional manufacturers for bulk and finished form MNTX as supplements and
backup to our current arrangements.
21
In the event we decide to establish a full-scale commercial manufacturing
facility for any or all of our products, we would need to spend substantial
additional funds and will be required to hire and train significant numbers of
employees and comply with the extensive FDA regulations applicable to such a
facility.
Sales and Marketing
We plan to market products for which we obtain regulatory approval through
co-marketing, co-promotion, licensing and distribution arrangements with third
party collaborators. We may also consider contracting with a third party
professional pharmaceutical detailing and sales organization to perform the
marketing function for our products. We believe that our current approach
allows us maximum flexibility of selecting the marketing method that will both
increase market penetration and commercial acceptance of our products and
enable us to avoid expending significant funds to develop a large sales and
marketing organization. Roche and Cytogen have certain marketing rights with
respect to the products covered by their respective license or collaboration
agreements with us.
Competition
Competition in the biopharmaceutical industry is intense and characterized
by ongoing research and development and technological change. We face
competition from many companies and major universities and research
institutions in the United States and abroad. We will face competition from
companies marketing existing products or developing new products for diseases
targeted by our technologies. Many of our competitors have substantially
greater resources, experience in conducting preclinical studies and clinical
trials and obtaining regulatory approvals for their products, operating
experience, research and development and marketing capabilities and production
capabilities than we do. We cannot assure you that our products under
development will compete successfully with existing products or products under
development by other companies, universities and other institutions. Our
competitors may succeed in obtaining FDA approval for products more rapidly
than we do. Drug manufacturers that are first in the market with a therapeutic
for a specific indication generally obtain and maintain a significant
competitive advantage over later entrants. Accordingly, the speed with which
we 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.
With respect to our products for the treatment of HIV infection, two classes
of products made by our competitors have been approved for marketing by the
FDA for the treatment of HIV infection and AIDS: reverse transcriptase
inhibitors and protease inhibitors. Both types of drugs have shown efficacy in
reducing the concentration of HIV in the blood and prolonging asymptomatic
periods in HIV-positive individuals, especially when administered in
combination. With respect to GMK, the FDA and certain other regulatory
authorities have approved high-dose alpha-interferon for marketing as a
treatment for patients with high-risk melanoma. High-dose alpha interferon has
demonstrated efficacy for this indication.
A significant amount of research in the biopharmaceutical field is also
being carried out at academic and government institutions. Our strategy is to
in-license technology and product candidates from academic and government
institutions. These institutions are becoming increasingly sensitive to the
commercial value of their findings and are becoming more aggressive in
pursuing patent protection and negotiating licensing arrangements to collect
royalties for use of technology that they have developed. These institutions
may also market competitive commercial products on their own or in
collaboration with competitors and will compete with us in recruiting highly
qualified scientific personnel. Any resulting increase in the cost or decrease
in the availability of technology or product candidates from these
institutions may adversely affect our business strategy.
Competition with respect to our technologies and product candidates is and
will be based, among other things, on:
o capabilities of our collaborators;
o efficacy and safety of our products;
o timing and scope of regulatory approval;
o product reliability and availability;
o marketing and sales capabilities;
22
o reimbursement coverage from insurance companies and others;
o degree of clinical benefits of our product candidates relative to their
costs;
o method of administering a product;
o price; and
o patent protection.
Our competitive position will also depend upon our ability to attract and
retain qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes, and to secure sufficient capital resources
for the often substantial period between technological conception and
commercial sales. Competitive disadvantages in any of these factors could
materially harm our business and financial condition.
Product Liability
The testing, manufacturing and marketing of our products involves an
inherent risk of product liability attributable to unwanted and potentially
serious health effects. To the extent we elect to test, manufacture or market
products independently, we will bear the risk of product liability directly.
We have obtained insurance in the amount of $5.0 million against the risk of
product liability. In addition, where the local statutory requirements exceed
the limits of the Company's existing insurance or local policies of insurance
are required, the Company maintains additional clinical trial liability
insurance to meet such requirements. 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.
Human Resources
At December 31, 2001, we had 80 full-time employees, fourteen of whom,
including Dr. Maddon, hold Ph.D. degrees or foreign equivalents and four of
whom, including Dr. Maddon, hold M.D. degrees. At such date, 59 employees were
engaged in research and development, medical and regulatory affairs and
manufacturing activities and 21 were engaged in finance, legal, administration
and business development. We consider our relations with our employees to be
good. None of our employees is covered by a collective bargaining agreement.
Executive Officers and Key Management
Our executive officers and key management are as follows: [Check new ages as
of date of filing]
Name Age Position
- ---- --- --------
Paul J. Maddon, M.D., Ph.D .................... 42 Chairman of the Board, Chief Executive Officer and Chief
Science Officer
Ronald J. Prentki, M.B.A ...................... 44 President and Director
Robert A. McKinney, CPA ....................... 45 Vice President, Finance & Operations and Treasurer
Philip K. Yachmetz, J.D ....................... 45 Vice President, General Counsel and Secretary
Robert J. Israel, M.D ......................... 45 Vice President, Medical Affairs
Richard W. Krawiec, Ph.D. ..................... 54 Vice President, Investor Relations & Corporate Communications
William C. Olson, Ph.D ........................ 39 Vice President, Research & Development
Kenneth G. Surowitz, Ph.D ..................... 43 Vice President, Quality & Regulatory Affairs
Thomas A. Boyd, Ph.D .......................... 50 Vice President, Preclinical Development and Project Management
Paul J. Maddon, M.D., Ph.D. is our founder and has served in various
capacities since our 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, is a member of the editorial board of
the Journal of Virology and is a member of the Board of Directors of the New
York Biotechnology Association. He received a B.A. in biochemistry and
mathematics and a M.D. and a Ph.D. in
23
biochemistry and molecular biophysics from Columbia University. Dr. Maddon has
been an Adjunct Assistant Professor of Medicine at Columbia University since
1989.
Ronald J. Prentki, M.B.A. joined us as our President in July 1998 and became
a director in September 1998. Prior to joining Progenics, Mr. Prentki had been
Vice President of Business Development and Strategic Planning at Hoffmann-La
Roche Inc. from 1996 to 1998. Mr. Prentki spent from 1990 to 1996 at Sterling
Winthrop (subsequently acquired by Sanofi Pharmaceuticals), most recently
serving as Vice President of Business Development. From 1985 to 1990 Mr.
Prentki was with Bristol-Myers Squibb International Division, initially
supporting the marketing of that company's oncology products and later as
Director of Cardiovascular Products. Mr. Prentki started his career in 1979 in
the Ames Diagnostic Division of Miles Laboratories holding a series of sales,
marketing and product development positions before leaving Miles Laboratories
in 1985. Mr. Prentki received a B.S. in Microbiology and Public Health from
Michigan State University and an M.B.A. from the University of Detroit.
Robert A. McKinney, CPA joined us 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 LLP, an international accounting firm. Mr. McKinney studied finance
at the University of Michigan, received a B.B.A. in accounting from Western
Connecticut State University, and is a Certified Public Accountant.
Philip K. Yachmetz, J.D. joined us in September 2000 as General Counsel and
Secretary and was promoted to Vice President in January 2002. Prior to joining
Progenics, Mr. Yachmetz had been Senior Vice President, Business Development,
General Counsel and Secretary of CytoTherapeutics, Inc from 1998 to 1999,
where he also was Acting Chief Financial Officer and Treasurer during 1999.
From 1997 to 1998, Mr. Yachmetz was a Principal and Managing Director of
Millennium Venture Management LLC a business consulting group servicing the
healthcare and high technology industries. Mr. Yachmetz was, from 1996 to
1997, Director, Legal & Corporate Affairs and Secretary of PlayNet
Technologies, Inc. an Internet based entertainment company. From January 1989
to October 1996, Mr. Yachmetz served as Senior Counsel of Hoffmann-La Roche
Inc. Mr. Yachmetz received a B.A. in Political Science from George Washington
University and a J.D. from California Western School of Law and is admitted to
practice law in New York and New Jersey.
Robert J. Israel, M.D. joined us 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. From 1988 to 1991, he was Associate Director,
Oncology Clinical Research at Schering-Plough Corporation. Dr. Israel is a
licensed physician and is board certified in both internal medicine and
medical oncology. He received a B.A. in physics from Rutgers University and 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.
Richard W. Krawiec, Ph.D. joined us in February 2001 as Vice President,
Investor Relations and Corporate Communications. Prior to joining Progenics,
Dr. Krawiec served as Vice President of Investor Relations and Corporate
Communications of Cytogen Corporation from 2000 to 2001. Prior to Cytogen, Dr.
Krawiec headed these departments at La Jolla Pharmaceuticals, Inc., Amylin
Pharmaceuticals, Inc. and IDEC Pharmaceuticals, Inc. Previously, Dr. Krawiec
was the founder and Editor-In-Chief of Biotechnology Week magazine and the
Managing Editor and founder of Biotechnology Newswatch. Dr. Krawiec received
B.S. in Biology from Boston University and a Ph.D. in Biological Sciences from
the University of Rhode Island.
William C. Olson, Ph.D. joined us in May 1994. Dr. Olson served as Senior
Director, Research and Development from May 1994 to January 2001, when he was
Vice President, 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.
24
Kenneth G. Surowitz, Ph.D. joined us in January 1999. Dr. Surowitz served as
Senior Director, Quality & Regulatory Affairs from January 1999 to January
2000, when he was appointed Vice President, Quality & Regulatory Affairs of
Progenics. From 1988 to 1999, Dr. Surowitz was employed at the Wyeth-Lederle
Vaccines and Pediatrics unit of American Home Products Corp. in a number of
positions within the organization, most recently as Director of Global
Regulatory Affairs. From 1985 to 1988, he was employed as a Product
Development Microbiologist at Procter and Gamble. Dr. Surowitz received Ph.D.
and M.S. degrees from Ohio State University in the field of microbiology and
an A.B. degree from Lafayette College in biology.
Thomas A. Boyd, Ph.D. joined us in January 2000 as Senior Director, Project
Management and was promoted to Vice President, Preclinical Development and
Project Management in January 2002. Before joining Progenics, Dr. Boyd held
positions with Wyeth-Ayerst Research and Alteon, Inc. Most recently he was
with Boehringer Ingelheim Pharmaceuticals, Inc., as Associate Director, R&D
Project Management. He received his Ph.D. from Brown University in physiology
and biophysics and an A.B. degree from the College of Arts and Sciences,
Cornell University.
Scientific Advisory Boards and Consultants
An important component of our scientific strategy is our collaborative
relationship with leading researchers in cancer and virology. Certain of these
researchers are members of our two Scientific Advisory Boards, one in cancer
and one in virology. The members of each SAB attend periodic meetings and
provide us with specific expertise in both research and clinical development.
In addition, we have collaborative research relationships with certain
individual SAB members. All members of the SABs are employed by employers
other than us and may have commitments to or consulting or advisory agreements
with other entities that may limit their availability to us. These companies
may also compete with us. Several members of the SABs have, from time to time,
devoted significant time and energy to our affairs. However, no member is
regularly expected to devote more than a small portion of time to Progenics.
In general, our scientific advisors are granted stock options in Progenics and
receive financial remuneration for their services.
The following table sets forth information with respect to our Scientific
Advisory Boards.
Cancer Scientific Advisory Board
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, Sloan-Kettering
Institute and Professor of Chemistry, Columbia University
Philip O. Livingston, M.D............................... Member, Sloan-Kettering and 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 Professor, CUMC
David B. Agus, M.D. .................................... Research Director, Prostate Cancer Institute, Cedars-Sinai Medical
Center
25
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, Institute 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
Sherie L. Morrison, Ph.D................................ Professor of Microbiology, UCLA
Robin A. Weiss, Ph.D. .................................. Professor and Director of Research, ICR, Royal Cancer Hospital, London
Other Scientific Consultants
Name Position/Affiliation
- ---- --------------------
David W. Golde, M.D. ................................... Member, Sloan-Kettering and Professor, CUMC
26
RISK FACTORS
Our business and operations entail a variety of risks and uncertainties,
including those described below.
If we cannot advance our products beyond the early stages of product
development or demonstrate clinical efficacy, we will never commercialize a
product.
Most of our products are at an early stage of development. The successful
commercialization of our products will require significant further research,
development, testing and regulatory approvals and additional investment. If we
cannot advance our products beyond the early stages of product development or
demonstrate clinical efficacy, we will never commercialize a product. There
are a number of technological challenges that we must successfully address to
complete most of our development efforts. We cannot assure you that any of our
products in the research or preclinical development stage will yield results
that would permit or justify clinical testing or that products that advance to
clinical testing will be commercialized.
Our product development programs are novel and, consequently, inherently
risky.
We are subject to the risks of failure inherent in the development of
product candidates based on new technologies. These risks include, but are not
limited to, the possibility that:
o the technologies we use will not be effective;
o our product candidates will be unsafe or otherwise fail to receive the
necessary regulatory approvals;
o our product candidates will be hard to manufacture on a large scale or
will be uneconomical to market; or
o we do not successfully overcome technological challenges presented by our
products.
To our knowledge, no drug designed to treat HIV infection by blocking viral
entry and no cancer therapeutic vaccine has been approved for marketing in the
U.S. Our other research and development programs involve similarly novel
approaches to human therapeutics. Consequently, there is no precedent for the
successful commercialization of products based on our technologies. We cannot
assure you that any of our products will be successfully developed.
A setback in our methylnaltrexone program could adversely affect us.
We have an ongoing Phase IIb clinical trial for MNTX and expect to commence
pivotal Phase III clinical trials designed to produce results and data
sufficient to support timely regulatory submissions. We are also planning a
series of additional Phase II clinical trials before the end of 2002. We are
dependent on single source third party suppliers for our supplies of bulk and
finished form clinical trial materials. If the results of the any of these
trials are not satisfactory, or if we encounter clinical trial supply issues,
our MNTX development program can be adversely affected resulting in delayed
timelines to the commencement of planned trials and our regulatory filing. The
need to conduct additional clinical trials or significant revisions to our
clinical development plan would lead to delays in our filing for and obtaining
the regulatory approvals necessary to market MNTX.
A setback in our GMK program could adversely affect us.
We have two ongoing Phase III clinical trials for GMK and expect to conclude
and analyze the data from one of them in 2002. Both of these trials are
designed to be pivotal, which means that they are designed to produce results
sufficient to support regulatory approval. If the results of either of these
trials are not satisfactory, we would need to conduct additional clinical
trials or abandon our GMK program. Since GMK is our most clinically advanced
product, a setback of this nature could have a material adverse effect on our
business. Moreover, failure of our GMK program could reflect adversely on our
MGV program.
In May 2000, our collaborating research cooperative in this trial, ECOG,
recommended to clinical investigators participating in the trial that they
discontinue administering GMK. See the discussion of GMK clinical trial
results under "Business" above for more information. We are continuing to
follow-up patients who were enrolled in the trial. However, we cannot predict
how long this will take or what the results will show, and we do not expect to
know the results much before the second half of 2002 or later.
27
Our clinical trials could take longer to complete than we expect.
Although for planning purposes we forecast the commencement and completion
of clinical trials, and have included some of those forecasts herein, the
actual timing of these events can vary dramatically due to factors such as
delays, scheduling conflicts with participating clinicians and clinical
institutions and the rate of patient accruals. GMK and MGV are intended for
treating patients with relatively early stage cancer and are designed to delay
or prevent the 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. We cannot assure you
that clinical trials involving our product candidates will commence or be
completed as forecasted.
We have limited experience in conducting clinical trials. In certain
circumstances we rely on corporate collaborators, academic institutions or
clinical research organizations to conduct, supervise or monitor some or all
aspects of clinical trials involving our products. In addition, certain
clinical trials for our products will be conducted by government-sponsored
agencies and consequently will be dependent on governmental participation and
funding. We will have less control over the timing and other aspects of these
clinical trials than if we conducted them entirely on our own. We cannot
assure you that these trials will commence or be completed as we expect or
that they will be conducted successfully. Failure to commence or complete, or
delays in, any of our planned clinical trials could unsettle investors'
confidence in our ability to develop products, which would likely cause our
stock price to decrease.
If testing does not yield successful results, our products will fail.
If preclinical and clinical testing of one or more of our products does not
yield successful results, those products may fail. To achieve the results we
need, we or our collaborators must demonstrate a product's safety and efficacy
in humans through extensive preclinical and clinical testing. Numerous
unforeseen events may arise during, or as a result of, the testing process,
including the following:
o the results of preclinical studies may be inconclusive, or they may not
be indicative of results that will be obtained in human clinical trials;
o potential products may not have the desired effect or may have
undesirable side effects or other characteristics that preclude
regulatory approval or limit their commercial use if approved;
o results attained in early human clinical trials may not be indicative of
results that are obtained in later clinical trials;
o after reviewing test results, we or our collaborators may abandon
projects which we might previously have believed to be promising, some of
which may be described herein; and
o we, our collaborators or regulators may suspend or terminate clinical
trials if the participating subjects or patients are being exposed to
unacceptable health risks.
Clinical testing is very expensive and can take many years. The failure to
adequately demonstrate the safety and efficacy of a therapeutic product under
development would delay or prevent regulatory approval of the product, which
could adversely affect our profitability and credibility.
Even if we get our products approved, they might not be accepted in the
marketplace.
The commercial success of our products will depend upon their acceptance by
the medical community and third party payors as clinically useful, cost
effective and safe. Even if our products obtain regulatory approval, we cannot
assure you that they will achieve market acceptance of any significance. If
any of our products do not achieve market acceptance, we will likely lose our
entire investment in that product.
Marketplace acceptance will depend in part on competition in our industry,
which is intense.
The extent to which any of our products achieve market acceptance will
depend on competitive factors. Competition in our industry is intense, and it
is accentuated by the rapid pace of technological development. Products
currently exist in the market that will compete with the products that we are
developing. Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial and managerial resources than do we. These competitors may develop
products that are superior to those we are developing and render our products
or technologies non-competitive or
28
obsolete. If our product candidates receive marketing approval but cannot
compete effectively in the marketplace, our profitability and financial
position would suffer.
If we lose our collaborative partners, or if they do not apply adequate
resources to our collaborations, our product development and profitability may
suffer.
Our business strategy includes entering into collaborations with corporate
partners, primarily pharmaceutical and other biotechnology companies, for one
or more of the research, development, manufacturing, marketing and other
commercialization activities relating to certain of our product candidates. If
we lose our collaborative partners, or if they do not apply adequate resources
to our collaborations, our product development and profitability may suffer.
The amount and timing of resources dedicated by our collaborators to their
collaborations with us is not within our control. If any collaborator breaches
or terminates its agreements with us, or fails to conduct its collaborative
activities in a timely manner, the commercialization of our product candidates
could be slowed down or blocked completely. We cannot assure you that our
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, as a means for developing treatments for the
diseases targeted by these collaborative programs. Our revenues and earnings
also will be affected by the effectiveness of our corporate partners in
marketing any successfully developed products.
We cannot assure you that our collaborations will continue or be successful
or that we will receive any further research funding or milestone or royalty
payments. If our partners do not develop products under these collaborations,
we cannot assure you that we would be able to do so on our own. Disputes may
arise between us and our collaborators as to a variety of matters, including
financial or other obligations under our contracts, the most promising
scientific or regulatory route to pursue or 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 product candidates.
We may not be able to negotiate additional collaborative agreements, which
could increase our internal burn rate or reduce our rate of product
development.
We intend to continue to pursue and enter into new collaborative agreements
in the future. However, we cannot assure you that we will be successful in
identifying or negotiating any additional collaborative arrangements, or that
any of these relationships, if established, will be scientifically or
commercially successful. Any additional collaborations would likely subject us
to some or all of the risks described above with respect to our current
collaborations. Furthermore, if we do not enter into new collaborative
arrangements, it is likely that our internal burn rate would increase or that
we would need to take steps to reduce our rate of product development.
We have a history of operating losses, and we may never be profitable.
We have a history of operating losses, and we may never be profitable. We
have incurred substantial losses since our inception. As of December 31, 2001,
we had an accumulated deficit of approximately $25.5 million. These losses
have resulted principally from costs incurred in our research and development
programs and from our general and administrative costs. We have derived no
significant revenues from product sales or royalties, and we do not expect to
achieve significant product sales or royalty revenue for a number of years, if
ever. We expect to incur additional operating losses in the future, which
could increase significantly as we expand development and clinical trial
efforts.
Our ability to achieve long-term profitability is dependent in part on
obtaining regulatory approvals for products and entering into agreements for
commercialization of our products. However, we cannot assure you that our
operations will be profitable even if any of our products under development
are commercialized.
We are likely to need additional financing, but our access to capital funding
is uncertain.
Our current and anticipated development projects require substantial
capital. We are likely to need substantial additional funds to conduct product
development activities. However, our access to capital funding is uncertain.
We do not have committed external sources of funding for most of our drug
discovery and
29
development projects, and we cannot assure you that we will be able to obtain
additional funds on acceptable terms, if at all. If adequate funds are not
available, we may be required to:
o delay, reduce the scope of or eliminate one or more of our programs;
o obtain funds through arrangements with collaborative partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
If we raise additional funds by issuing equity securities, further dilution
to stockholders may result, and new investors could have rights superior to
existing stockholders.
We have limited manufacturing capabilities, which could adversely impact our
ability to commercialize products.
We have limited manufacturing capabilities, which may result in increased
costs of production or delay product development or commercialization. In
order to commercialize our product candidates successfully, we or our
collaborators must be able to manufacture products in commercial quantities,
in compliance with regulatory requirements, at acceptable costs and in a
timely manner. The manufacture of our product candidates can be complex,
difficult to accomplish even in small quantities, difficult to scale-up when
large scale production is required and subject to delays, inefficiencies and
poor or low yields of quality products. The cost of manufacturing certain of
our products may make them prohibitively expensive. The contamination or loss
of a supply of our product candidates, adjuvants or related materials could
seriously delay clinical trials, since these materials are time-consuming to
manufacture and cannot be readily obtained from third-party sources. We have
constructed two pilot-scale manufacturing facilities, one for the production
of vaccines and one for the production of recombinant proteins, which we
believe will be sufficient to meet our initial needs for clinical trials.
However, these facilities may be insufficient for late-stage clinical trials
and would be insufficient for commercial-scale manufacturing requirements. We
may be required to expand further our manufacturing staff and facilities,
obtain new facilities or contract with corporate collaborators or other third
parties to assist with production.
In the event that we decide to establish a commercial-scale manufacturing
facility, we will require substantial additional funds and will be required to
hire and train significant numbers of employees and comply with applicable
regulations, which are extensive. We cannot assure you that we will be able to
develop a manufacturing facility that both meets regulatory requirements and
is sufficient for all clinical trials or commercial-scale manufacturing.
We have entered into arrangements with third parties for the manufacture of
certain of our products. We cannot assure you that this strategy will result
in a cost-effective means for manufacturing products. In employing third-party
manufacturers, we will not control many aspects of the manufacturing process.
We cannot assure you that we will be able to obtain adequate supplies from
third-party manufacturers in a timely fashion for development or
commercialization purposes or that commercial quantities of products will be
available from contract manufacturers at acceptable costs.
We are subject to extensive regulation, which can be costly, time consuming
and subject us to unanticipated delays.
We and our products are subject to comprehensive regulation by the Food and
Drug Administration 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 pharmaceutical products.
Violations of regulatory requirements at any stage, whether before or after
marketing approval is obtained, may result in fines, forced removal of a
product from the market and other adverse consequences.
30
We do not yet have, and may never obtain, the regulatory approvals we need to
successfully market our products.
Our products have not yet been approved by applicable regulatory authorities
for commercialization. The process of obtaining FDA and other required
regulatory approvals, including foreign approvals, often takes many years and
can vary substantially based upon the type, complexity and novelty of the
products involved. We have had only limited experience in filing and pursuing
applications necessary to gain regulatory approvals. We cannot guarantee that
any of our products under development will be approved for marketing by the
FDA. Even if regulatory approval of a product is granted, we cannot be certain
that we will be able to obtain the labeling claims necessary or desirable for
the promotion of such products. Even if we obtain regulatory approval, we may
be required to undertake post-marketing trials to verify a product's efficacy
or safety. In addition, identification of side effects after a drug is on the
market or the occurrence of manufacturing problems could result in subsequent
withdrawal of approval, reformulation of the drug, additional preclinical
testing or clinical trials, changes in labeling of the product, and additional
marketing applications. If we receive regulatory approval, we will also be
subject to ongoing FDA obligations and continued regulatory review. Delays in
receipt of or failure to receive regulatory approvals, or the loss of
previously received approvals, would delay or prevent product
commercialization, which would adversely affect our financial results.
We are dependent on our patents and proprietary rights. The validity,
enforceability and commercial value of these rights are highly uncertain.
Our success is dependent in part on obtaining, maintaining and enforcing
patent and other proprietary rights. The patent position of biotechnology and
pharmaceutical firms is highly uncertain and involves many complex legal and
technical issues. There is no clear policy involving the breadth of claims
allowed in such cases, or the degree of protection afforded under such
patents. Accordingly, we cannot assure you that patent applications owned by
or licensed to us will result in patents being issued or that, if issued, the
patents will give us an advantage over competitors with similar technology.
We own or have licenses to certain issued patents. However, the issuance of
a patent is not conclusive as to its validity or enforceability. The validity
or enforceability of a patent after its issuance by the patent office can be
challenged in litigation. We cannot assure you that our patents will not be
successfully challenged. Moreover, the cost of litigation to uphold the
validity of patents and to prevent infringement can be substantial. If the
outcome of litigation is adverse to us, third parties may be able to use our
patented invention without payment to us. Moreover, we cannot assure you that
our patents will not be infringed or successfully avoided through design
innovation.
We are required to make substantial cash payments and achieve certain
milestones and satisfy certain conditions, including filing investigational
new drug applications, obtaining product approvals and introducing products,
to maintain our rights under our licenses, including our licenses from
Memorial Sloan-Kettering Cancer Center and Columbia University. We cannot
assure you that we will be able to maintain our rights under these licenses.
Termination of any of these licenses could result in our being unable to
commercialize any related product.
In addition to the intellectual property rights described above, we also
rely on unpatented technology, trade secrets and confidential information. We
cannot assure you that others will not independently develop substantially
equivalent information and techniques or otherwise gain access to our
technology or disclose such technology, or that we can effectively protect our
rights in unpatented technology, trade secrets and confidential information.
We require each of our employees, consultants and advisors to execute a
confidentiality agreement at the commencement of an employment or consulting
relationship with us. We cannot assure you, however, that these agreements
will provide effective protection in the event of unauthorized use or
disclosure of this confidential information.
If we infringe third-party patents, we could need to alter or terminate a
product development program.
There may be patent rights belonging to others that require us to alter our
products, pay licensing fees or cease certain activities. If our products
conflict with patent rights of others, they could bring legal actions against
us claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If these legal actions are successful, in addition to any
potential liability for damages, we could be required to obtain a license
31
in order to continue to manufacture or market the affected products. We cannot
assure you that we 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. For example, we have filed a number of U.S. and foreign patent
applications, one of which is owned jointly with the Aaron Diamond AIDS
Research Center, relating to the discovery of the HIV co-receptor CCR5. We are
aware that other groups have claimed discoveries similar to those covered by
our patent applications. We do not expect to know for several years the
relative strength of our patent position as compared to these other groups.
The research, development and commercialization of a biopharmaceutical often
involves alternative development and optimization routes, which are presented
at various stages in the development process. The preferred routes cannot be
predicted at the outset of a research and development program because they
will depend on subsequent discoveries and test results. There are numerous
third-party patents in our field, and it is possible that to pursue the
preferred development route of one or more of our products we will need to
obtain a license to a patent, which would decrease the ultimate profitability
of the applicable product. If we cannot negotiate a license, we might have to
pursue a less desirable development route or terminate the program altogether.
We are dependent on third parties for a variety of functions; we cannot assure
you that these arrangements will provide us with the benefits we expect.
In addition to our reliance on corporate collaborators, we rely in part on
third parties to perform a variety of functions, including research and
development, manufacturing, clinical trials management and regulatory affairs.
As of December 31, 2001, we had only 80 full-time employees. We are party to
several agreements which place substantial responsibility on third parties for
clinical development of our products. We also in-license technology from
medical and academic institutions in order to minimize investments in early
research, and we enter into collaborative arrangements with certain of these
entities with respect to clinical trials of product candidates. We cannot
assure you that we will be able to maintain any of these relationships or
establish new ones on beneficial terms, that we can enter into these
arrangements without undue delays or expenditures or that these arrangements
will allow us to compete successfully.
We lack sales and marketing experience, which makes us dependent on third
parties for their expertise in this area.
We have no experience in sales, marketing or distribution. Assuming receipt
of required regulatory approvals, we expect to market and sell our products
principally through distribution, co-marketing, co-promotion or licensing
arrangements with third parties. We may also consider contracting with a third
party professional pharmaceutical detailing and sales organization to perform
the marketing function for our products. To the extent that we enter into
distribution, co-marketing, co-promotion, detailing or licensing arrangements
for the marketing and sale of our products, any revenues we receive will
depend primarily on the efforts of these third parties. We will not control
the amount and timing of marketing resources such third parties devote to our
products. In addition, if we market products directly, significant additional
expenditures and management resources would be required to develop an internal
sales force. We cannot assure you that we would be able to establish a
successful sales force should we choose to do so.
If we lose key management and scientific personnel on whom we depend, our
business could suffer.
We are dependent upon our key management and scientific personnel. In
particular, the loss of Dr. Maddon, our Chief Executive Officer and Chief
Science Officer, or Mr. Prentki, our President, could cause our management and
operations to suffer unless a qualified replacement could be found. We
maintain key man life insurance on Dr. Maddon in the amount of $2.5 million.
We have an employment agreement with Dr. Maddon that automatically renewed
unless either party provided notice of termination by a defined period prior
to December 31, 2001. No such notice was provided by either party and as such
Dr. Maddon's agreement has automatically renewed for the ensuing annual period
subject to agreement on compensation terms. We anticipate that mutually
acceptable terms will be agreed to between the Company and Dr. Maddon.
We also have an employment agreement with Mr. Prentki the initial term of
which runs through March 2004, subject to automatic annual extensions unless
either party provides 6 months prior notice of termination.
32
Competition for qualified employees among companies in the biopharmaceutical
industry is intense. Our future success depends upon our ability to attract,
retain and motivate highly skilled employees. In order to commercialize our
products successfully, we may be required to expand substantially our
personnel, particularly in the areas of manufacturing, clinical trials
management, regulatory affairs, business development and marketing. We cannot
assure you that we will be successful in hiring or retaining qualified
personnel.
If sufficient quantities of the raw materials needed to make our products are
not available, product development and commercialization could be slowed or
stopped.
For example, we cannot assure you that sufficient quantities of the raw
materials needed to make our products will be available to support continued
research, development or commercial manufacture of our products. We currently
obtain supplies of critical raw materials used in production of GMK and MGV
from single sources. In particular, commercialization of GMK and MGV requires
an adjuvant, QS-21, available only from Antigenics, Inc. We have entered into
a license and supply agreement with Antigenics pursuant to which they agreed
to supply us with all of our QS-21 requirements for use in certain
ganglioside-based cancer vaccines, including GMK and MGV. We cannot assure you
that Antigenics will be able to supply sufficient quantities of QS-21 or that
we will have the right or capability to manufacture sufficient quantities of
QS-21 to meet our needs if Antigenics is unable or unwilling to do so. Any
delay or disruption in the availability of raw materials could slow or stop
product development and commercialization of the relevant product.
A substantial portion of our funding comes from federal government grants; we
cannot rely on these grants as a continuing source of funds.
A substantial portion of our revenues to date has been derived from federal
grants and research contracts. In addition to previous years' awards, in 2001
we were awarded, in the aggregate, approximately $5.2 million in National
Institute of Health grants and research contracts. We cannot rely on these
grants as a continuing source of funds. 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 decide to scale back these programs or terminate them. Consequently, we
cannot assure you that we will be awarded research grants in the future or
that any amounts derived from them will not be less than those received to
date.
We are subject to the uncertainty related to health care reform measures and
reimbursement policies.
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 medical procedures and
treatments or subject the pricing of pharmaceuticals to government control. In
addition, as a result of the trend towards managed health care in the United
States, as well as legislative proposals to reduce government insurance
programs, third-party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement of new
drug products. Consequently, significant uncertainty exists as to the
reimbursement status of newly-approved health care products. If we or any of
our collaborators succeeds in bringing one or more of our products to market,
we cannot assure you that third-party payors will establish and maintain price
levels sufficient for realization of an appropriate return on our investment
in product development. Significant changes in the health care system in the
United States or elsewhere, including changes resulting from adverse trends in
third-party reimbursement programs, could have a material adverse effect on
our profitability. Such changes also could have a material adverse effect on
our ability to raise capital. Furthermore, our ability to commercialize
products may be adversely affected to the extent that these proposals affect
our collaborators.
We are exposed to product liability claims, and it is uncertain that in the
future insurance against these claims will be available to us at a reasonable
rate.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. We cannot assure you that we will be able to avoid product liability
exposure. Product liability insurance for the biopharmaceutical industry is
generally expensive, when available at all. We have obtained product liability
insurance coverage in the amount of $5.0 million per occurrence, subject to a
$5.0 million aggregate limitation. However, we cannot assure you that our
present insurance coverage is now or will continue to be adequate. In
addition, some of our license and collaborative agreements require us to
obtain product liability insurance. We cannot assure you that adequate
insurance
33
coverage will be available to us at a reasonable cost in the future or that a
product liability claim or recall would not have a material adverse effect on
our financial position.
We deal with hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. We could
also be liable for damages, penalties or other forms of censure if we are
involved in a hazardous waste spill or other accident.
Our research and development work and manufacturing processes involve the
use of hazardous, controlled and radioactive materials. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials. Despite precautionary
procedures that we implement for handling and disposing of these materials,
the risk of accidental contamination or injury cannot be eliminated. In the
event of a hazardous waste spill or other accident, we could also be liable
for damages, penalties or other forms of censure. Although we believe that we
are in compliance in all material respects with applicable environmental laws
and regulations, we cannot assure you that we will not be required to incur
significant costs to comply with environmental laws and regulations in the
future or that we will not be materially and adversely affected by current or
future environmental laws or regulations.
Our stock price has a history of volatility. You should consider an investment
in our stock as risky and invest only if you can withstand a significant loss.
Our stock price has a history of significant volatility. At times, our stock
price has been volatile even in the absence of significant news or
developments relating to Progenics. Moreover, the stocks of biotechnology
companies and the stock market generally have been subject to dramatic price
swings in recent years. Factors that may have a significant impact on the
market price of our common stock include:
o the results of preclinical studies and clinical trials by us, our
collaborators or our competitors;
o announcements of technological innovations or new commercial products by
us, our collaborators or our competitors;
o developments in our relationships with collaborative partners;
o developments in patent or other proprietary rights;
o governmental regulation;
o changes in reimbursement policies;
o health care legislation;
o public concern as to the safety and efficacy of products developed by us,
our collaborators or our competitors;
o fluctuations in our operating results; and
o general market conditions.
In addition, the market prices of equity securities generally have
experienced significant volatility in the recent past, with the stock of small
capitalization companies, like us, experiencing the greatest volatility. These
price swings, as to our stock, as to our industry, as well as to the stock
market generally, may continue. Moreover, the experiences of other companies
would lead us to expect a severe decline in our stock price if we experience
an adverse development in our business. As described above, our business plan
is risky, and so there is a very real possibility that we will not succeed in
achieving our goals.
Anti-takeover provisions may discourage hostile bids for control of our
company that may be beneficial to our stockholders.
Certain of our stockholders, including Dr. Maddon and stockholders
affiliated with Tudor Investment Corporation, beneficially own or control a
substantial portion of our outstanding shares of common stock and therefore
may have the ability, acting together, to elect all of our directors, to
determine the outcome of corporate actions requiring stockholder approval and
otherwise control our business. This control could have the effect of delaying
or preventing a change in control of our Company and, consequently, could
adversely affect the market
34
price of our common stock. In addition, our Board of Directors is authorized,
without further stockholder action, to issue from time to time shares of
preferred stock in one or more designated series or classes. The issuance of
preferred stock, as well as provisions in certain of our stock options which
provide for acceleration of exercisability upon a change of control, and
Section 203 and other provisions of the Delaware General Corporation Law,
could make the takeover of Progenics or the removal of our Board of Directors
or management more difficult, discourage hostile bids for control of Progenics
in which stockholders may receive a premium for their shares of common stock
or otherwise dilute the rights of holders of common stock and depress the
market price of our common stock.
Sales of common stock may have an adverse impact on the market price of our
common stock.
A substantial number of outstanding shares of common stock and shares of
common stock issuable upon exercise of outstanding options and warrants are
eligible for sale in the public market. Sales of substantial numbers of shares
of common stock could adversely affect prevailing market prices. Some of our
stockholders are entitled to require us to register their shares of common
stock for offer or sale to the public. We have filed a Form S-8 registration
statement registering shares issuable pursuant to our stock option plans. Any
sales by existing stockholders or holders of options or warrants may have an
adverse effect on our ability to raise capital and may adversely affect the
market price of the common stock.
Item 2. Properties
We sublease approximately 48,000 square feet of laboratory, manufacturing
and office space in Tarrytown, New York. We sublease this space pursuant to a
sublease which terminates in June 2005. We have two pilot production
facilities within these leased facilities for the manufacture of products for
clinical trials. The base monthly rent for our sublease is $60,000 thorugh
December 31, 2002 and approximately $65,000 from January 1, 2003 through
June 30, 2005, plus additional utility charges. We believe that these
facilities are adequate for our current needs, although we may in the future
need to expand our facilities for additional research and development and
manufacturing capacity.
Item 3. Litigation
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the fourth
quarter of 2001.
35
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our Common Stock is quoted on the Nasdaq National Market under the symbol
"PGNX." The following table sets forth, for the periods indicated, the high
and low sales price per share of the Common Stock, as reported on the Nasdaq
National Market. Such prices reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transactions.
High Low
---- ---
2000
----
First quarter ............................................. $96.000 $40.250
Second quarter ............................................ 76.000 9.500
Third quarter ............................................. 35.000 14.062
Fourth quarter ............................................ 34.000 14.937
2001
----
First quarter ............................................. $30.000 $10.000
Second quarter ............................................ 22.740 10.313
Third quarter ............................................. 23.250 10.370
Fourth quarter ............................................ 19.550 12.960
On March 27, 2002, the last sale price for the Common Stock as reported by
Nasdaq was $15.250. There were approximately 152 holders of record of the
Company's Common Stock as of March 27, 2002.
Dividends
We have not paid any dividends since our inception and presently anticipate
that all earnings, if any, will be retained for development of our business
and that no dividends on our common stock will be declared in the foreseeable
future.
36
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 2001 and 2000
and for each of the three years in the period ended December 31, 2001 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, 1997, 1998 and 1999 and for each of the
two years in the period ended December 31, 1998 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,
--------------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Contract research and development........................................... $14,591 $11,135 $14,867 $ 7,941 $ 5,115
Research grants............................................................. 665 1,251 1,106 1,836 3,725
Product sales............................................................... 57 180 40 45 43
Interest income............................................................. 301 1,455 1,440 4,127 3,348
------- ------- ------- ------- --------
Total revenues............................................................ 15,614 14,021 17,453 13,949 12,231
------- ------- ------- ------- --------
Expenses:
Research and development.................................................... 7,364 8,296 11,227 13,075 14,501
General and administrative.................................................. 2,222 3,841 3,866 5,042 6,499
Loss in Joint Venture....................................................... 2,047 945 2,225
Interest expense............................................................ 312 43 112 95 49
Depreciation and amortization............................................... 319 388 697 709 707
------- ------- ------- ------- --------
Total expenses............................................................ 10,217 12,568 17,949 19,866 23,981
------- ------- ------- ------- --------
Operating income (loss)................................................... 5,397 1,453 (496) (5,917) (11,750)
Payment from collaborator................................................... 9,852
Income taxes................................................................ 258 -- -- -- --
------- ------- ------- ------- --------
Net income (loss)......................................................... $ 5,139 $ 1,453 $ (496) $(5,917) $ (1,898)
======= ======= ======= ======= ========
Per share amounts on net income(loss):
Basic....................................................................... $ 1.64 $ 0.16 $ (0.05) $ (0.49) $ (0.15)
======= ======= ======= ======= ========
Diluted..................................................................... $ 0.66 $ 0.14 $ (0.05) $ (0.49) $ (0.15)
======= ======= ======= ======= ========
December 31,
-------------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities............................. $23,624 $24,650 $67,617 $60,424 $61,877
Working capital.............................................................. 20,562 25,137 53,053 48,808 40,650
Total assets............................................................... 24,563 27,900 71,261 67,013 67,481
Capital lease obligations and deferred lease liability, long-term portion.... 141 117 37 4 39
Total stockholders' equity................................................. 23,034 26,079 67,821 64,754 64,345
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 to address the unmet medical needs of
patients with debilitating conditions and life-threatening diseases. We
commenced principal operations in late 1988 and since that time have been
engaged primarily in research and development efforts, development of our
manufacturing capabilities, establishment of corporate collaborations and
raising capital. In order to commercialize the principal products that we have
under
37
development, we 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 we receive revenues from sales of any of these
products. To date, product sales have consisted solely of limited revenues
from the sale of research reagents. We expect that sales of research reagents
in the future will not significantly increase over current levels. Our other
sources of revenues through December 31, 2001 have been payments received
under our collaboration agreements, research grants and contracts related to
our cancer and HIV programs and interest income.
To date, a majority of our expenditures have been for research and
development activities. We expect that our research and development expenses
will increase significantly as our programs progress and we make filings for
related regulatory approvals. With the exception of the years ended December
31, 1997 and 1998, we have had recurring losses and had, at December 31, 2001,
an accumulated deficit of approximately $25,519,000. We will require
additional funds to complete the development of our products, to fund the cost
of clinical trials and to fund operating losses that are expected to continue
for the foreseeable future. We do not expect our products under development to
be commercialized in the near future.
Results of Operations
Years Ended December 31, 2000 and 2001
Contract research and development revenue decreased from $7,941,000 in 2000
to $5,115,000 in 2001. The decrease was primarily attributable to: (i) a
reduction of contract research and development funding received by the Company
after the Company and Bristol-Myers Squibb Company ("BMS") mutually terminated
our collaboration agreement in May 2001, and (ii) the expiration of one of the
Company's contracts with the NIH in 2001. The Company also received a non-
recurring payment of approximately $9,852,000 from BMS in connection with the
termination of the BMS Agreement. As a result of the termination of the BMS
Agreement, the Company will receive no additional payments from BMS. Revenues
from research grants increased from $1,835,000 in 2000 to $3,725,000 in 2001.
The increase resulted from the funding of a greater number of grants in 2001.
Sales of research reagents decreased from $46,000 in 2000 to $43,000 in 2001
resulting from decreased orders for such reagents during 2001. Interest income
decreased from $4,127,000 in 2000 to $3,348,000 in 2001 as cash available for
investing remained relatively constant and interest rates decreased year over
year.
Research and development expenses increased from $13,075,000 in 2000 to
$14,501,000 in 2001. The increase was principally due to an increase in
headcount, related laboratory supplies and additional rent for new laboratory
space as the Company expanded its research and development programs to include
MNTX (methylnaltrexone).
General and administrative expenses increased from $5,042,000 in 2000 to
6,499,000 in 2001. The increase was principally due to an increase in legal
expenses related to the Company's intellectual property filings and
prosecutions, headcount and additional rent for new office space to
accommodate growth.
Loss in joint venture increased from $945,000 in 2000 to $2,225,000 in 2001.
The increase was primarily due to the growth and acceleration of the joint
venture's development programs to develop in vivo immunotherapies for prostate
cancer and the costs of licensing transactions.
Interest expense decreased from $95,000 in 2000 to $49,000 in 2001. The
decrease was principally due to the recognition of interest expense as the
Company discounted future capital contributions to the joint venture which
decreased in 2001 and reduced capital lease obligations in 2001.
Our net loss was $5,917,000 in 2000 compared to net loss of $1,898,000 in
2001.
Years Ended December 31, 1999 and 2000
Contract research and development revenue decreased from $14,867,000 in 1999
to $7,941,000 in 2000. The decrease was the result of receiving milestone
payments in 1999 in connection with our collaboration with BMS. No such
payments were received in 2000. Reimbursement of clinical development costs
during 2000 remained at 1999 levels. Revenues from research grants increased
from $1,106,000 in 1999 to $1,836,000 in 2000. The increase resulted from the
funding of a greater number of grants in 2000. Sales of research reagents
increased from $40,000 in 1999 to $45,000 in 2000 resulting from increased
orders for such reagents during 2000. Interest
38
income increased from $1,440,000 in 1999 to $4,127,000 in 2000 as cash
available for investing increased due the Company's public offering which
closed in November 1999.
Research and development expenses increased from $11,227,000 in 1999 to
$13,075,000 in 2000. The increase was principally due to an increase in
headcount, related laboratory supplies and additional rent for new laboratory
space as the Company expanded its research and development programs to include
PSMA and DHA and additional costs of manufacturing PRO 542.
General and administrative expenses increased from $3,866,000 in 1999 to
$5,042,000 in 2000. The increase was principally due to an increase in
headcount and additional rent for new office space to accommodate growth.
Loss in joint venture decreased from $2,047,000 in 1999 to $945,000 in 2000.
The decrease was primarily due to the expensing of a license fee with respect
to intellectual property in 1999. Research activities on PSMA commenced in the
second half of 1999.
Interest expense decreased from $112,000 in 1999 to $95,000 in 2000. The
decrease was principally due to the recognition of interest expense as the
Company discounted future capital contributions to the joint venture which
decreased in 2000.
Our net loss was $496,000 in 1999 compared to net loss of $5,917,000 in
2000.
Liquidity and Capital Resources
We have funded our operations since inception primarily through private
placements of equity securities, loans that were subsequently converted into
equity securities, a line of credit that was repaid and terminated, payments
received under collaboration agreements, such as those with BMS and Roche, two
public offerings of common stock, funding under government research grants and
contracts, interest on investments, and the proceeds from the exercise of
outstanding options and warrants. In May 2001 the Company and BMS mutually
agreed to terminate our cancer vaccine collaborative development agreement,
pursuant to which we regained all rights to the products and received a non-
recurring payment of approximately $9,852,000 from BMS. As a result of the
termination of the BMS Agreement, the Company will receive no additional
payments from BMS.
In November 1997, we sold 2,300,000 shares of common stock in our initial
public offering. After deducting underwriting discounts and commissions and
other expenses, we received net proceeds of $16,015,000. In November 1999, we
completed an additional public offering of 2,300,000 shares of common stock
and received net proceeds, after underwriting discounts and commissions and
other expenses, of $40,584,000. The net proceeds from both offerings were
invested in short-term, interest bearing investment grade securities pending
further application.
At December 31, 2001, we had cash, cash equivalents and marketable
securities, including non-current portion, totaling approximately $61,877,000
compared with approximately $60,424,000 at December 31, 2000. Our facility
lease has been extended to June 2005. In connection with the extended facility
lease, we expended approximately $888,000 for equipment and leasehold
improvements during 2001. In addition, we are obligated, under the terms of
our joint venture with Cytogen Corporation to fund research and development of
up to $3.0 million prior to the commencement of sharing these expenses with
Cytogen. During the fourth quarter of 2001, we were required to pay $650,000
as our share of the joint venture contribution, of which $150,000 was paid in
December 2001 and $500,000 was paid in January 2002. We and Cytogen reached a
mutually satisfactory agreement with respect to the resolution of a dispute
related to the timely reacquisition on behalf of the Joint Venture of certain
rights from a third party, which we had reported last year and which could
have reduced our initial funding obligation by $500,000.
Our total expenses for research and development from inception through
December 31, 2001 have been approximately $71.0 million. We currently have
major research and development programs investigating cancer and human
immunodeficiency virus-related diseases ("HIV"), for which we are or have
licensed technology and collaborated with other pharmaceutical and
biotechnology companies. In addition, we are conducting several smaller
projects in the areas of stroke and pain. For various reasons, many of which
are outside of our control, including the early stage of our programs, the
timing and results of our clinical trials and our dependence on third parties,
we cannot estimate the total remaining costs to be incurred and timing to
complete our research and
39
development programs. For the years ended December 31, 2001, 2000 and 1999,
research and development costs incurred were as follows:
Years Ended December 31,
------------------------
1999 2000 2001
----- ----- -----
(in $ million)
Cancer....................................................... $ 6.8 $ 5.7 $ 4.2
HIV.......................................................... 3.9 6.9 9.8
Other programs............................................... .5 .5 .5
----- ----- -----
Total....................................................... 11.2 13.1 14.5
We believe that our existing capital resources should be sufficient to fund
operations at least through 2003. However, this is a forward-looking statement
based on our current operating plan and the assumptions on which it relies.
There could be changes that would consume our assets before such time. We will
require substantial funds to conduct research and development activities,
preclinical studies, clinical trials and other activities relating to the
commercialization of any potential products. In addition, our cash
requirements may vary materially from those now planned because of results of
research and development and product testing, changes in existing
relationships with, or new relationships with, licensees, licensors or other
collaborators, changes in the focus and direction of our research and
development programs, competitive and technological advances, the cost of
filing, prosecuting, defending and enforcing patent claims, the regulatory
approval process, manufacturing and marketing and other costs associated with
the commercialization of products following receipt of regulatory approvals
and other factors. We have no committed external sources of capital and, as
discussed above, expect no significant product revenues for a number of years
as it will take at least that much time, if ever, to bring our products to the
commercial marketing stage. We 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 our technology,
to fund future operations. We cannot assure you, however, that we will be able
to obtain additional funds on acceptable terms, if at all. We have no off-
balance sheet arrangements and do not guarantee the obligations of any other
entity.
In connection with our funding requirements, the following table summarizes
our contractual obligations as of December 31, 2001, for future operating
lease payments and payments for licensing, corporate collaboration and service
agreements:
Payments Due by
Period
---------------
Less than 1 to 3 4 to 5 Greater than
Total one year years years 5 years
----- --------- ------ ------ ------------
(in $ millions)
Operating leases........................................................... $ 2.7 $0.7 $1.6 $0.4
Licensing, collaboration and service agreements (1)........................ 22.7 1.2 5.4 6.3 9.8
- ---------------
(1) Assumes attainment of milestones covered under each agreement.
Critical Accounting Policies
Revenue Recognition
We recognize revenue from contract research and development as we perform
services, provided a contractual agreement exists, the contract price is fixed
or determinable, and our collection of the resulting receivable is probable.
In situations where we receive payment in advance of the performance of
services, these amounts are deferred and recognized as revenue as we perform
the related services. Non-refundable fees, including payments we receive for
services, up-front licensing fees and milestone payments are recognized as
revenue based on the percentage of costs incurred to date, estimated costs to
complete and total expected contract revenue. However, the revenue we
recognize is limited to the amount of non-refundable fees received. Non-
refundable fees that we receive in consideration for granting collaborators
the right to license product candidates developed by us are recognized as
revenue on a straight-line basis over the term of the underlying agreements.
With regard to our revenues from non-refundable fees, changes in estimates of
our costs to complete could have a material impact on the revenues we
recognize.
40
In connection with the formation of the equally-owned joint venture in the
form of a partnership (the "Partnership") between us and Cytogen Corporation
(the "Partners"), we have funded the first $3.0 million of research and
development costs incurred on behalf of the Partnership. Prior to reaching
$3.0 million of such costs, we recognized reimbursements on a net basis and
did not recognize any revenue from the Partnership. Subsequent to having
funded $3.0 million of research and development costs, in the fourth quarter
of 2001, both Partners are required to fund the Partnership to support ongoing
research and development efforts conducted by us on behalf of the Partnership.
Accordingly, following $3.0 million of funding, we, acting as a principal,
recognize payments for research and development as revenue. We are the primary
obligor responsible for providing the service, by conducting research and
development, desired by the Partnership, including the acceptability of the
research and development services and we have established the amounts we will
be reimbursed for the services by selecting the subcontractors and suppliers
we employ in conducting the research and development for the Partnership.
Clinical Trial Expenses
Clinical trial expenses, which are included in research and development
expenses, represent obligations resulting from our contracts with various
clinical research organizations in connection with conducting clinical trials
for our product candidates. Such costs are expensed based on the expected
total number of patients in the trial, the rate at which the patients enter
the trial and the period over which the clinical research organizations are
expected to provide services. We believe that this method best approximates
the efforts expended on a clinical trial with the expenses we record. We
adjust our rate of clinical expense recognition if actual results differ from
our estimates.
Impact of the Adoption of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." FAS 141 requires that all business combinations be
accounted for under the purchase method and that certain acquired intangible
assets in a business combination be recognized as assets apart from goodwill.
FAS 142 requires that ratable amortization of goodwill and certain intangible
assets be replaced with periodic tests of the goodwill's impairment and that
other intangible assets be amortized over the useful lives. FAS 141 is
effective for all business combinations initiated after June 30, 2001. The
provisions of MS 142 will be effective for fiscal years beginning after
December 15, 2001 and will be adopted by the Company in 2002. The Company does
not expect the adoption of FAS 141 and 142 to have a material impact on its
financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Obligations Associated
with Retirement of Long-Lived Assets." The objective of FAS 143 is to provide
accounting guidance for legal obligations associated with the retirement of
tangible long-lived assets. The retirement obligations included with the scope
of FAS 143 are those that an entity cannot avoid as a result of either the
acquisition, construction or normal operation of a long-lived asset.
Components of larger systems also fall under FAS 143, as well as intangible
long-lived assets with indeterminable lives. FAS 143 is require to be adopted
on January 1, 2003. The Company does not expect the adoption of FAS 143 to
have any material impact on its financial statements.
The Financial Accounting Standards Board issued FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The
objectives of FAS 144 are to address significant issues relating to the
implementation of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and to develop
a single accounting model, based on the framework established in FAS 121, for
long-lived assets to be disposed of by sale, whether previously held and used
or newly acquired. The provisions of FAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company does not expect the adoption of FAS 144 to have any material impact on
its financial statements.
41
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2001, the Company did not hold any market risk sensitive
instruments.
Item 8. Financial Statements and Supplementary Data
See page F-1, "Index to Financial Statements."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
42
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.
43
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 of Progenics Pharmaceuticals, Inc.
Balance Sheets at December 31, 2000 and 2001
Statements of Operations for the years ended December 31, 1999, 2000 and
2001
Statements of Stockholders' Equity for the years ended December 31, 1999,
2000 and 2001
Statements of Cash Flows for the years ended December 31, 1999, 2000 and
2001
Notes to the Financial Statements
3. Financial Statements of PSMA Development Company LLC
Balance Sheets at December 31, 2000 and 2001
Statements of Operations for the period from June 15, 1999 (inception) to
December 31, 1999, the years ended December 31, 2000 and 2001 and the
cumulative period from June 15, 1999 (inception) to December 31, 2001
Statements of Stockholders' (Deficit) Equity for the period from June 15,
1999 (inception) to December 31, 2001, including the period from June 15,
1999 (inception) to December 31, 1999 and the years ended December 31,
2000 and 2001
Statements of Cash Flows for the period from June 15, 1999 (inception) to
December 31, 1999, the years ended December 31, 2000 and 2001, and the
cumulative period from June 15, 1999 (inception) to December 31, 2001
Notes to Financial Statements
b) Reports on Form 8-K
On May 15, 2001, we filed a Current Report on Form 8-K in which Item 5 Other
Events were reported and no financial statements were filed.
On October 1, 2001 we filed a Current Report on Form 8-K in which Item 7
exhibits were filed and an Item 9 Regulation FD disclosure was made and no
financial statements were filed.
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.
44
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 J. Maddon, M.D., PH.D.
-----------------------------------------
Paul J. Maddon, M.D., Ph.D.
Chairman of the Board and Chief
Executive Officer
Date: March 29, 2002
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 Date
--------- ----
/s/ Paul J. Maddon, M.D., PH.D. Chairman of the Board and Chief Executive March 29, 2002
--------------------------------------------------- Officer (Principal Executive Officer)
Paul J. Maddon, M.D., Ph.D.
/s/ Ronald J. Prentki President and Director March 29, 2002
---------------------------------------------------
Ronald J. Prentki
/s/ Robert A. McKinney Vice President, Finance and Operations and March 29, 2002
--------------------------------------------------- Treasurer (Principal) Financial and Accounting
Robert A. McKinney Officer)
/s/ Charles A. Baker Director March 29, 2002
---------------------------------------------------
Charles A. Baker
/s/ Mark F. Dalton Director March 29, 2002
---------------------------------------------------
Mark F. Dalton
/s/ Stephen P. Goff, PH.D. Director March 29, 2002
---------------------------------------------------
Stephen P. Goff, Ph.D.
/s/ Kurt W. Briner Director March 29, 2002
---------------------------------------------------
Kurt W. Briner
/s/ Paul F. Jacobson Director March 29, 2002
---------------------------------------------------
Paul F. Jacobson
/s/ David A. Scheinberg, M.D., PH.D. Director March 29, 2002
---------------------------------------------------
David A. Scheinberg, M.D., Ph.D.
45
Progenics Pharmaceuticals, Inc.
Index to Financial Statements
Page
----
Progenics Pharmaceuticals, Inc.
Report of Independent Accountants ....................................... F-2
Financial Statements:
Balance Sheets as of December 31, 2000 and 2001........................ F-3
Statements of Operations for the years ended December 31, 1999, 2000
and 2001............................................................... F-4
Statements of Stockholders' Equity for the years ended December 31,
1999, 2000 and 2001.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1999, 2000
and 2001............................................................... F-6
Notes to Financial Statements ........................................... F-7
PSMA Development Company L.L.C. (a development stage enterprise)
Report of Independent Accountants ....................................... F-24
Financial Statements:
Balance Sheets as of December 31, 2000 and 2001........................ F-25
Statements of Operations for the period from June 15, 1999 (inception)
to December 31, 1999,
the years ended December 31, 2000 and 20001 and the cumulative period
from
June 15, 1999 (inception) to December 31, 2001......................... F-26
Statements of Stockholders' (Deficit) Equity for the period from June
15, 1999 (inception) to December 31, 2001, including the period from
June 15, 1999 (inception) to December 31, 1999
and the years ended December 31, 2000 and 2001......................... F-27
Statements of Cash Flows for the period from June 15, 1999 (inception)
to December 31, 1999,
the years ended December 31, 2000 and 2001, and the cumulative period
from June 15, 1999 (inception) to December 31, 2001.................... F-28
Notes to Financial Statements ........................................... F-29
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of
Progenics Pharmaceuticals, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Progenics Pharmaceuticals, Inc.
(the "Company") at December 31, 2000 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 15, 2002
F-2
PROGENICS PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31,
---------------------------
2000 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 5,628,987 $ 10,759,636
Certificates of Deposit ........................ 1,000,000
Marketable securities .......................... 40,089,556 30,523,239
Accounts receivable ............................ 2,651,679 378,020
Other current assets ........................... 1,693,044 2,086,585
------------ ------------
Total current assets.......................... 51,063,266 43,747,480
------------ ------------
Marketable securities ........................... 13,705,208 20,594,274
Fixed assets, at cost, net of accumulated
depreciation and amortization.................. 2,215,519 2,560,199
Investment in joint venture ..................... 29,361 579,296
------------ ------------
Total assets.................................. $ 67,013,354 $ 67,481,249
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses .......... $ 1,790,194 $ 2,597,089
Amount due to joint venture .................... 457,251 500,000
Capital lease obligations, current portion ..... 7,445
------------ ------------
Total current liabilities..................... 2,254,890 3,097,089
Deferred lease liability ........................ 38,797
Capital lease obligations ....................... 4,524
------------ ------------
Total liabilities............................. 2,259,414 3,135,886
------------ ------------
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.001 par value; 20,000,000
shares authorized;
issued and outstanding - none
Common stock, $.0013 par value; 40,000,000
shares authorized;
shares issued and outstanding 12,267,180 in
2000
and 12,429,916 in 2001........................ 15,947 16,159
Additional paid-in capital ..................... 88,419,150 89,664,075
Unearned compensation .......................... (162,244) (23,150)
Accumulated deficit ............................ (23,620,684) (25,518,834)
Accumulated other comprehensive income ......... 101,771 207,113
------------ ------------
Total stockholders' equity.................... 64,753,940 64,345,363
------------ ------------
Total liabilities and stockholders' equity.... $ 67,013,354 $ 67,481,249
============ ============
The accompanying notes are an integral part of the financial statements.
F-3
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
-----------------------------------------
1999 2000 2001
----------- ----------- ------------
Revenues:
Contract research and development.................................................... $14,866,982 $ 7,941,185 $ 5,115,464
Research grants...................................................................... 1,106,298 1,835,564 3,725,375
Product sales........................................................................ 40,315 45,524 42,800
Interest income...................................................................... 1,439,461 4,127,156 3,348,401
----------- ----------- ------------
Total revenues..................................................................... 17,453,056 13,949,429 12,232,040
----------- ----------- ------------
Expenses:
Research and development............................................................. 11,226,521 13,074,815 14,501,400
General and administrative........................................................... 3,866,321 5,042,485 6,499,153
Loss in Joint Venture................................................................ 2,047,409 945,519 2,225,454
Interest expense..................................................................... 111,925 94,892 48,816
Depreciation and amortization........................................................ 696,415 708,874 707,382
----------- ----------- ------------
Total expenses..................................................................... 17,948,591 19,866,585 23,982,205
----------- ----------- ------------
Operating loss..................................................................... (495,535) (5,917,156) (11,750,165)
Payment from collaborator............................................................. 9,852,015
----------- ----------- ------------
Net loss........................................................................... $ (495,535) $(5,917,156) $ (1,898,150)
=========== =========== ============
Net loss per share - basic and diluted................................................ $ (0.05) $ (0.49) $ (0.15)
=========== =========== ============
The accompanying notes are an integral part of the financial statements.
F-4
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 2000 and 2001
Accumulated
Common Stock Additional Other
--------------------- Paid-in Unearned Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Income
---------- ------- ----------- ------------ ------------ -------------
Balance at December 31, 1998 ............. 9,358,207 $12,166 $44,377,193 $(1,111,018) $(17,207,993) $ 9,090
Amortization of unearned compensation... 519,876
Issuance of compensatory stock options.. 48,332
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants............. 247,567 322 1,322,841
Issuance of Common Stock in connection
with a public offering ($19.00/share),
net of expenses........................ 2,300,000 2,990 40,581,233
Net loss for the year ended December 31,
1999................................... (495,535)
Changes in unrealized (loss) on
marketable securities.................. (238,794)
---------- ------- ----------- ------------ ------------ -------------
Balance at December 31, 1999 ............. 11,905,774 15,478 86,329,599 (591,142) (17,703,528) (229,704)
Amortization of unearned compensation... 428,898
Issuance of compensatory stock options.. 164,476
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants............. 361,406 469 1,925,075
Net loss for the year ended December 31,
2000................................... (5,917,156)
Changes in unrealized gain on marketable
securities............................. 331,475
---------- ------- ----------- ------------ ------------ -------------
Balance at December 31, 2000 ............. 12,267,180 15,947 88,419,150 (162,244) (23,620,684) 101,771
Amortization of unearned compensation... 139,094
Issuance of compensatory stock options.. 238,333
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants 162,736 212 1,006,592
Net loss for the year ended December 31,
2001................................... (1,898,150)
Changes in unrealized gain on marketable
securities............................. 105,342
---------- ------- ----------- ------------ ------------ -------------
Balance at December 31, 2001 ............. 12,429,916 $16,159 $89,664,075 $ (23,150) $(25,518,834) $ 207,113
========== ======= =========== =========== ============ =========
Comprehensive
Total Income (Loss)
----------- -------------
Balance at December 31, 1998 ............. $26,079,438 $ 1,461,787
===========
Amortization of unearned compensation... 519,876
Issuance of compensatory stock options.. 48,332
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants............. 1,323,163
Issuance of Common Stock in connection
with a public offering ($19.00/share),
net of expenses........................ 40,584,223
Net loss for the year ended December 31,
1999................................... (495,535) (495,535)
Changes in unrealized (loss) on
marketable securities.................. (238,794) (238,794)
----------- -------------
Balance at December 31, 1999 ............. 67,820,703 $ (734,329)
===========
Amortization of unearned compensation... 428,898
Issuance of compensatory stock options.. 164,476
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants............. 1,925,544
Net loss for the year ended December 31,
2000................................... (5,917,156) $(5,917,156)
Changes in unrealized gain on marketable
securities............................. 331,475 331,475
----------- -------------
Balance at December 31, 2000 ............. 64,753,940 $(5,585,681)
===========
Amortization of unearned compensation... 139,094
Issuance of compensatory stock options.. 238,333
Sale of Common Stock under employee
stock purchase plans and exercise of
stock options and warrants 1,006,804
Net loss for the year ended December 31,
2001................................... (1,898,150) (1,898,150)
Changes in unrealized gain on marketable
securities............................. 105,342 105,342
----------- -------------
Balance at December 31, 2001 ............. $64,345,363 $(1,792,808)
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
December 31,
-------------------------------------------
1999 2000 2001
------------ ------------ ------------
Cash flows from operating activities:
Net loss........................................................................... $ (495,535) $ (5,917,156) $ (1,898,150)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................................................... 696,415 708,874 707,382
Amortization of premiums, net of discounts,
on marketable securities........................................................ 148,857 436,957 383,613
Amortization of discount on investment in
Joint Venture................................................................... 72,813 87,504 42,749
Loss in Joint Venture............................................................ 2,047,409 945,519 2,225,454
Expenses incurred in connection with issuance of
common stock, stock options and warrants........................................ 568,208 593,374 377,427
Realized loss from the sale of marketable
securities...................................................................... 64,181
Changes in assets and liabilities:
Decrease (increase) in accounts receivable...................................... 487,740 (1,504,939) 2,273,659
(Increase) in prepaid and other current assets.................................. (468,597) (668,585) (393,541)
Decrease in security deposits and other assets.................................. 10,706 3,039
Increase (decrease) in accounts payable and
accrued expenses.............................................................. 852,796 (1,365,603) 519,632
Increase in investment in Joint Venture......................................... (1,323,519) (901,836) (2,275,389)
Increase in deferred lease liability 38,797
------------ ------------ ------------
Net cash provided by (used in) operating
activities................................................................... 2,597,293 (7,582,852) 2,065,814
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures............................................................... (1,042,840) (1,325,243) (1,264,799)
Purchase of marketable securities.................................................. (46,449,032) (41,064,989) (49,704,020)
Sale of marketable securities...................................................... 12,870,000 30,569,000 52,038,819
Purchase of certificate of deposit................................................. (1,000,000)
Sale of certificate of deposit..................................................... 1,000,000
------------ ------------ ------------
Net cash (used in) provided by
investing activities......................................................... (34,621,872) (12,821,232) 2,070,000
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of equity securities, net of
offering expenses................................................................ 41,907,386 1,925,544 1,006,804
Payment of capital lease obligations............................................... (107,622) (104,921) (11,969)
------------ ------------ ------------
Net cash provided by financing activities...................................... 41,799,764 1,820,623 994,835
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................................................. 9,775,185 (18,583,461) 5,130,649
------------ ------------ ------------
Cash and cash equivalents at beginning of period.................................... 14,437,263 24,212,448 5,628,987
------------ ------------ ------------
Cash and cash equivalents at end of period $ 24,212,448 $ 5,628,987 $ 10,759,636
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................. $ 38,832 $ 7,388 $ 6,067
Supplemental disclosure of noncash investing and financing activities:
Fixed assets included in accounts payable and
accrued expenses................................................................ $ 35,856 $ 238,089 $ 25,352
The accompanying notes are an integral part of the financial statements.
F-6
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
therapeutic products to treat the unmet medical needs of patients with
debilitating conditions and life-threatening diseases. The Company applies its
immunological expertise to develop biopharmaceuticals to fight viral diseases,
such as human immunodeficiency virus ("HIV") infection, and cancers, including
malignant melanoma and prostate cancer. The Company was incorporated in
Delaware on December 1, 1986. All of the Company's operations are located in
New York. The Company operates under a single segment.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company has derived all of its product revenue from the sale of research
reagents to up 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 reagents and
cost of product sales is not material.
The Company has been awarded government research grants and contracts from
the National Institutes of Health (the "NIH"). The NIH grants are used to
subsidize the Company's research projects ("Projects"). 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.
The NIH contracts reimburse the Company for costs associated with
manufacturing products ordered by the NIH in the HIV area.
Payments have been received from Bristol-Myers Squibb Company, Hoffmann-
LaRoche, the Department of Defense, Aaron Diamond AIDS Research Center and the
National Institutes of Health (collectively the "Collaborators") (see Note 7)
and PSMA Development Company, L.L.C. ("PSMA") (a related party, see Note 8)
for contract research and development. 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. The
gross profit margin on such revenues are not material.
On January 1, 2000, the Company adopted Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In accordance with
SAB 101, Non-refundable fees, including payments for services, up-front
licensing fees and milestone payments (collectively, "Non-refundable Fees"),
are recognized as revenue based on the percentage of costs incurred to date,
estimated costs to complete, and total expected contract revenue. However,
revenue recognized is limited to the amount of Non-refundable Fees received.
Prior to January 1, 2000, the Company recognized revenue as described above,
except that certain Non-refundable Fees were recognized as revenue when there
were no additional contractual services to be provided or costs to be incurred
by the Company in connection with the Non-refundable Fee. There was no
cumulative effect of adopting SAB 101 at January 1, 2000.
Interest income is recognized as earned.
For each of the three years in the period ended December 31, 2001, all of
the Company's research grant revenue and contract research and development
revenue came from PSMA and the Collaborators.
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 PSMA and the Collaborators. The Company
invests its excess cash in investment grade securities issued by corporations
and governments. The Company has
F-7
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
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
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, 2001 and 2000, the Company had
invested approximately $6,223,000 and $4,505,000 in funds with two major
investment companies and held approximately $4,537,000 and $1,124,000 in a
single commercial bank, respectively. In addition, at December 31, 2000 the
Company held a $1 million certificate of deposit, in a commercial bank, with a
30-day maturity.
Net (Loss) Income Per Share
The Company prepares its per share data in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Basic net (loss) 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. Disclosures required by SFAS No. 128 have
been included in Note 12.
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.
F-8
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Risks and Uncertainties
The Company has no products approved for sale by the U.S. Food and Drug
Administration. 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.
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 revenue recognition,
clinical trial accruals, fixed assets and deferred taxes. Actual results could
differ from those estimates.
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.
Comprehensive (Loss) Income
Comprehensive (loss) income represents the change in net assets of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive (loss) income of the
Company includes net (loss) income adjusted for the change in net unrealized
gain or loss on marketable securities. The net effect of income taxes on
comprehensive (loss) income is immaterial. The disclosures required by
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" for the years ended December 31, 1999, 2000 and 2001 have been
included in the Statements of Stockholders' Equity.
Reclassifications
Certain reclassifications have been made to the financial statements for
1999 and 2000 to conform with the current year's presentation.
Impact of Future Adoption of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." FAS 141 requires that all business combinations be
accounted for under the purchase method and that certain acquired intangible
assets in a business combination be recognized as assets apart from goodwill.
FAS 142 requires that ratable amortization
F-9
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
of goodwill and certain intangible assets be replaced with periodic tests of
the goodwill's impairment and that other intangible assets be amortized over
the useful lives. FAS 141 is effective for all business combinations initiated
after June 30, 2001. The provisions of FAS 142 will be effective for fiscal
years beginning after December 15, 2001 and will be adopted by the Company in
2002. The Company does not expect the adoption of FAS 141 and 142 to have a
material impact on its financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Obligations Associated
with Retirement of Long-Lived Assets." The objective of FAS 143 is to provide
accounting guidance for legal obligations associated with the retirement of
tangible long-lived assets. The retirement obligations included with the scope
of FAS 143 are those that an entity cannot avoid as a result of either the
acquisition, construction or normal operation of a long-lived asset.
Components of larger systems also fall under FAS 143, as well as intangible
long-lived assets with indeterminable lives. FAS 143 is require to be adopted
on January 1, 2003. The Company does not expect the adoption of FAS 143 to
have any material impact on its financial statements.
The Financial Accounting Standards Board issued FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The
objectives of FAS 144 are to address significant issues relating to the
implementation of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and to develop
a single accounting model, based on the framework established in FAS 121, for
long-lived assets to be disposed of by sale, whether previously held and used
or newly acquired. The provisions of FAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company does not expect the adoption of FAS 144 to have any material impact on
its financial statements.
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.
As of December 31, 2000 and 2001, marketable securities had maturities of
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, 2000 and 2001:
Unrealized Holding
Amortized Fair --------------------------------
Cost Basis Value Gains (Losses) Net
----------- ----------- -------- --------- --------
2001:
Maturities less than one year
Corporate debt securities...................................... $30,237,360 $30,523,239 $288,111 $ (2,232) $285,879
Maturities between one and three years
Corporate debt securities...................................... 20,673,040 20,594,274 32,402 (111,168) (78,766)
----------- ----------- -------- --------- --------
$50,910,400 $51,117,513 $320,513 $(113,400) $207,113
=========== =========== ======== ========= ========
2000:
Maturities less than one year
Corporate debt securities...................................... $39,997,722 $40,089,556 $117,800 $ (25,966) $ 91,834
Maturities between one and three years
Corporate debt securities...................................... 13,695,271 13,705,208 29,167 (19,230) 9,937
----------- ----------- -------- --------- --------
$53,692,993 $53,794,764 $146,967 $ (45,196) $101,771
=========== =========== ======== ========= ========
F-10
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Marketable Securities -- (Continued)
There were no realized gains and losses from the sale of marketable
securities for the years ended December 31, 1999 and 2000. The realized loss
for the year ended December 31, 2001 was $64,181. 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.
4. Fixed Assets
Fixed assets, including amounts under capitalized lease obligations, consist
of the following:
December 31,
--------------------------
2000 2001
----------- -----------
Machinery and equipment ........................... $ 3,181,913 $ 3,718,587
Furniture and fixtures ............................ 462,850 525,637
Leasehold improvements ............................ 1,369,157 1,821,759
----------- -----------
5,013,920 6,065,983
Less, Accumulated depreciation and amortization .. (2,798,401) (3,505,784)
----------- -----------
$ 2,215,519 $ 2,560,199
=========== ===========
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
------------------------
2000 2001
---------- ----------
Accounts payable .................................... $ 391,367 $ 916,711
Accrued consulting and clinical trial ............... 579,992 703,508
Accrued payroll and related costs ................... 486,549 543,283
Legal fees payable .................................. 332,286 433,587
---------- ----------
$1,790,194 $2,597,089
========== ==========
6. Stockholders' Equity
The Company is authorized to issue 40,000,000 shares of common stock, par
value $.0013 ("Common Stock"), and 20,000,000 shares of preferred stock, par
value $.001. The Board has the authority to issue common and preferred shares,
in series, with rights and privileges determined by the Board.
In connection with the issuance of equity securities in 1995 and 1996, the
Company issued 347,249 five-year warrants (the "Warrants"). Each Warrant
entitles the holder to purchase .75 share of Common Stock at $6.67. The number
of 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. During each of the years ended December 31, 1999, 2000 and 2001,
29,900, 182,327, and 135,022 warrants were exercised. As of December 31, 2001,
all of the Warrants had been exercised.
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 $2.0
million. The Line expired on July 31, 1997. The payment of the Line was
guaranteed by two affiliates of a stockholder of the Company ("Affiliates").
In consideration for the guarantee of the Line, which has since been
terminated, the Company issued 70,000 warrants to the Affiliates. Such
warrants vested immediately, expire after five years and have an exercise
price of $4.00. As of December 31, 2001, all 70,000 warrants were outstanding.
F-11
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Stockholders' Equity -- (Continued)
On November 19, 1999, the Company completed a follow-on offering of
2,300,000 shares of its common stock, in which the Company raised
approximately $40.6 million, net of expenses and underwriting discount.
7. Commitments and Contingencies
a. Operating Leases
The Company leases office and laboratory space under a noncancelable
sublease agreement. The sublease, as amended, provides for fixed monthly
rental expense of approximately $60,000 through December 31, 2002 and $65,081
from January 2003 through June 30, 2005. The sublease also provides for
additional charges based upon usage of certain utilities in excess of defined
amounts ("Additional Utility Charges"). The sublease can be extended at the
option of the Company for two additional two-year terms.
The Company also leases office equipment under noncancelable operating
leases. The leases expire at various times through March 2005. As of December
31, 2001, future minimum annual payments under all operating lease agreements,
are as follows:
Minimum
Years ending December 31, Annual Payments
------------------------- ---------------
2002................................... $ 731,340
2003................................... 792,312
2004................................... 792,312
2005................................... 401,826
----------
$2,717,790
Rental expense totaled approximately $659,000, $441,000 and $611,000 for the
years ended December 31, 1999, 2000 and 2001, respectively. For the year ended
December 31, 2001, the Company recognized rental expense in excess of amounts
paid of approximately $39,000. Additional Utility Charges, were not material
for the year ended December 31, 1999 and were $551,382 and $805,333 for the
years ended December 31, 2000 and 2001, respectively.
b. Capital Lease
Through 2001, the Company leased certain equipment under various
noncancelable capital lease agreements. The leases were for periods ranging
from three to five years, after which the Company: (i) either had the option
or was required to purchase the equipment at defined monthly amounts or (ii)
may have extended the lease for up to one additional year at defined monthly
amounts or (iii) was required to return the equipment, as per the respective
lease agreements. During 2001, the Company repaid all outstanding capital
lease balances. Leased equipment included as a component of fixed assets was
approximately $351,000 and none at December 31, 2000 and 2001, respectively;
related accumulated depreciation was approximately $308,000 and none for the
same respective periods.
c. Licensing, Corporate Collaboration and Service 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
F-12
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Commitments and Contingencies -- (Continued)
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. 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.
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 7(d)). 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 2004, 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. The Company is also party to a license agreement with
Sloan-Kettering whereby the Company has en exclusive, worldwide license to
certain patents relating to DHA, which license continues for 20 years or until
the expiration
F-13
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Commitments and Contingencies -- (Continued)
of the subject patents. 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.
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., a wholly
owned subsidiary of Antigenics, 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, 2001, the restrictions on 22,500 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 2004 ("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.
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 license to certain
therapeutic cancer vaccines (the "Cancer Vaccines"). Upon execution of the
agreement, BMS made non-refundable cash payments as reimbursement for certain
expenses incurred by the Company in the development of the Cancer Vaccines and
as a licensing fee. In addition, BMS was obligated to make future non-
refundable payments as defined upon the achievement of specified milestones
and pay royalties on any product sales. BMS also subsidized ongoing
development, clinical trials and regulatory filings ("Development Costs")
conducted by the Company on a time and material basis related to the Cancer
Vaccines.
In May 2001, BMS and the Company mutually agreed to terminate the BMS
License Agreement. Under the terms of the settlement agreement, BMS
relinquished all future rights to the Cancer Vaccines and paid the Company
$15.5 million. Approximately $5.6 million of the payment related to contract
work performed prior to termination and the balance was a contract termination
payment. Under the terms of certain license agreements, a portion of the
termination payment was paid to certain licensors.
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.
F-14
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Commitments and Contingencies -- (Continued)
(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 collaboration had an
original term of three years and has subsequently been extended for two
additional years by mutual agreement. The Roche Agreement shall remain in
force until the expiration of all obligations to pay royalties pursuant to any
licenses specifies 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 March 2002, Roche exercised its right to discontinue funding the research
being conducted under the Roche Agreement and the Company is in discussions
with Roche to determine the future development program for the compounds
identified during the four years of collaborative effort.
vi. Development and License Agreement with Protein Design Labs, Inc.
Effective April 30, 1999, the Company and Protein Design Labs, Inc. ("PDL")
entered into a Development and License Agreement (the "License Agreement")
under which PDL agreed to develop a humanized antibody (the "Technology") on
behalf of the Company and granted to the Company an exclusive worldwide
license under certain patents and patent applications to develop, use and sell
products arising from the Technology ("Products"). PDL also granted to the
Company non-exclusive licenses to PDL technical information, as defined, and
sublicenses to PDL licenses from third parties to the extent necessary to
enable the Company to make, use and sell Products. In addition, in June 1999
the Company exercised its right under the License Agreement to acquire an
option to obtain a sublicense to certain additional patents and paid PDL a fee
in connection therewith.
Upon the achievement by PDL of certain performance-based milestones, as
defined, the Company is required to make non-refundable payments to PDL. The
Company is also required to pay royalties based on a percentage of net sales,
as defined, of all Products for a specified period and non-refundable annual
maintenance fees under certain conditions.
The Company has the ability to terminate the License Agreement upon 60 days
prior written notice. If terminated prior to a defined date, the Company will
reimburse PDL for costs and expenses to the date of termination. Either party
may terminate the License Agreement upon 10 or 30 days written notice of
default in making scheduled payments or other breach, respectively, that is
not cured by the other party. Otherwise, the License Agreement will continue
until expiration of the Company's obligation to pay royalties to PDL.
vii. Genzyme Transgenics Corporation
The Company has entered into a collaboration with Genzyme Transgenics to
develop a transgenic source of the PRO 542 molecule. Under this agreement,
Genzyme Transgenic is engaged in a program designed to result in the
establishment of a line of transgenic goats capable of expressing the molecule
in lactation milk. The Company is obligated to pay Genzyme Transgenics certain
fees to conduct the program as well as additional fees upon the achievement of
specified milestones.
F-15
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Commitments and Contingencies -- (Continued)
viii. Pharmacopeia, Inc.
In March 2000, the Company entered into a research and license agreement
with Pharmacopeia, Inc. to discover therapeutic treatments related to HIV.
This agreement expanded on a collaboration with Pharmacopeia commenced in
September 1997. Under the terms of the new agreement, the Company will provide
proprietary assays and expertise and Pharmacopeia will engage in a screening
program of its internal compound library. In August 2000, the Company expanded
its collaboration with Pharmacopeia to add two additional programs. Progenics
will be granted a license to active compounds identified in the program. The
Company is obligated to pay Pharmacopeia fees as well as additional amounts
upon the achievement of specified milestones and royalties on any sales of
therapeutics marketed as a result of the collaboration.
ix. UR Labs, Inc.
In October 2001 the Company entered into an agreement with UR Labs, Inc.
(the "URL Agreement") to obtain worldwide exclusive rights to methylnaltrexone
(MNTX), an investigational drug in late-stage clinical development. UR Labs
has exclusively licensed MNTX from the University of Chicago, where it was
discovered. In consideration for the license, the Company paid a
nonrefundable, noncreditable license fee and is obligated to pay additional
payments upon the occurrence of certain defined milestones associated with the
MNTX product development and commercialization program. In addition, the
Company is required to pay royalties based upon net sales of the licensed
products, subject to certain set off rights of the Company and the right of
the Company to buy-down the royalty rate under defined circumstances. The URL
Agreement may be terminated by UR Labs under specified circumstances that
include the Company's failure to achieve certain milestones; however the
consent of UR Labs to revisions to the due dates for the milestones shall not
be unreasonably withheld under certain circumstances. If not terminated early,
the URL Agreement continues until the later of the expiration of the UR Labs
patents or defined period. The Company has the right to terminate the URL
Agreement upon 60 days prior written notice. The termination of the URL
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 URL Agreement, there can be no assurances that the agreement will not
be terminated.
In connection with all the agreements discussed above, the Company has
recognized milestone, license and sub-license fees, which are included in
research and development expenses, totaling approximately $2,077,000,
$2,110,000 and $2,141,000 for the years ended December 31, 1999, 2000 and
2001, respectively. In addition, as of December 31, 2001, remaining payments
associated with milestones and defined objectives with respect to the above
agreements total approximately $22 million. Future annual minimum royalties
under the licensing agreements described in (i) through (iii) and (vi) through
(ix) above are not significant.
d. Consulting Agreements
As part of the Company's research and development efforts it enters into
consulting agreements with external scientific specialists ("Scientists") and
others. These Agreements contain varying terms and provisions including fees
to be paid by the Company and royalties, in the event of future sales, and
milestone payments, upon achievement of defined events, payable to the
Company. Certain Scientists, some of who are members of the Company's
Scientific Advisory Board, 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 $631,000, $719,000 and $538,000 for the years ended December 31,
1999, 2000 and 2001, respectively. For the years ended December 31, 1999, 2000
and 2001, such expenses include the fair value of stock options granted during
1999, 2000 and 2001, which were fully vested at grant date, of approximately
$48,000, $164,000 and $238,000, respectively.
F-16
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. PSMA Development Company LLC
On June 15, 1999, the Company and CYTOGEN Corporation ("CYTOGEN")
(collectively, the "Members") formed a joint venture in the form of a limited
liability company (the "LLC" or "JV") for the purposes of conducting research,
development, manufacturing and marketing of products related to the prostate-
specific membrane antigen ("PSMA"). In connection with the formation of the
JV, the Members entered into a series of agreements, including an LLC
Agreement, a License Agreement and a Services Agreement (collectively, the
"Agreements"). Each Member made an initial capital contribution of $100,000.
In general, each Member has equal representation on the JV's management
committee and equal voting rights and equal rights to profits and losses of
the JV.
Under the LLC Agreement, the Company was required to pay to the JV $2.0
million in supplemental capital contributions at certain defined dates or upon
the achievement of defined milestones by the JV. As discussed below, since it
was probable that the Company would be required to fund the $2.0 million
supplemental capital contribution, the Company, on June 15, 1999, recorded a
liability to the JV of approximately $1.8 million. Such amount represented the
present value of the supplemental capital contribution discounted at 10%. The
discount was amortized as interest expense over the term of the remaining
payments. $1.0 million was paid during 1999 and $500,000 was paid during each
of 2000 and 2001.
In accordance with the Agreements, the Company's $2.0 million supplemental
capital contribution was used by the JV to pay a $2.0 million non-refundable
licensing fee to CYTOGEN ("CYTOGEN Payment"). The payment terms of the CYTOGEN
Payment are identical to the payment terms of the Company's required
supplemental capital contribution. Accordingly, at inception, the JV has
discounted the CYTOGEN Payment along with the Company's supplemental capital
contribution thereby recording approximately a $1.8 million liability to
CYTOGEN and a $1.8 million receivable from the Company.
The Company is engaged in a research program on behalf of the JV under the
Services Agreement and is compensated for its services based on agreed upon
terms. The Company was originally required to fund the cost of research up to
$3.0 million. The JV agreement provided that the Company's funding obligations
are reduced by $500,000 and defined marketing rights are enhanced, if Cytogen
did not by June 15, 2000, acquire certain third-party license rights on behalf
of the JV. The Company and CYTOGEN reached an agreement which did not reduce
the Company's funding obligation for research and development on behalf of the
JV. As of December 31, 2001, the Company had surpassed the $3.0 million in
funding for research costs. Accordingly, each member was required to
contribute $650,000 to fund future research costs and will share such costs
equally. Amounts received from the JV as reimbursement of research and
development costs in excess of $3.0 million are recognized as contract
research and development revenue. For the year ended December 31, 2001, such
amount totaled approximately $200,000 and the gross profit margin on such
revenue was not material. All inventions made by the Company in connection
with the Services Agreement will be assigned to the JV for its use and
benefit.
The Agreements generally terminate upon the last to expire of the patents
granted by the Members to the JV or upon breach by either party, which is not
cured within 60 days of written notice.
F-17
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. PSMA Development Company LLC -- (Continued)
The Company accounts for its investment in the JV in accordance with the
equity method of accounting. Selected financial statement data of the JV are
as follows:
December 31,
-------------------------
2000 2001
----------- -----------
Balance Sheet Data
Cash .............................................. $ 208,729 $ 1,009,929
=========== ===========
Accounts payable
CYTOGEN .......................................... 457,251
The Company ...................................... 150,007 351,333
Capital contributions
CYTOGEN .......................................... 100,000 1,000,000
The Company ...................................... 3,022,289 5,798,424
Contribution receivable from the Company .......... (457,251) (500,000)
Accumulated deficit ............................... (3,063,567) (5,639,828)
----------- -----------
$ 208,729 $ 1,009,929
=========== ===========
Statement of Operations Data
For the Period
from June 15, 1999 For the Year Ended
(inception) to -------------------------
December 31, 1999 2000 2001
------------------ ---------- -----------
Total revenue (interest income) ..................... $ 72,813 $ 96,233 $ 47,111
Total expenses ...................................... 2,147,178 1,085,435 2,623,372
----------- ---------- -----------
Net loss ............................................ $(2,074,365) $ (989,202) $(2,576,261)
=========== ========== ===========
9. Stock Option and Employee Stock Purchase 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 4,000,000 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.
F-18
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Stock Option and Employee Stock Purchase Plans -- (Continued)
The following table summarizes stock option information for the Plans as of
December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Exercise Prices Number Remaining Exercise Number Exercise
- ------------------------ Outstanding Contractual Life Price Exercisable Price
----------- ---------------- --------- ----------- ---------
$ 1.33 - $ 1.33 .......................... 143,773 7.3 $ 1.33 143,773 $ 1.33
$ 4.00 - $ 5.33 .......................... 820,971 3.7 $ 4.46 725,971 $ 4.54
$ 6.65 - $ 9.63 .......................... 337,350 6.8 $ 9.18 200,950 $ 9.10
$ 10.00 - $ 15.00 .......................... 1,493,833 8.0 $13.12 821,319 $12.65
$ 15.04 - $ 22.06 .......................... 461,000 8.5 $17.59 111,500 $17.83
$ 25.06 - $ 28.00 .......................... 132,000 8.8 $27.09 29,000 $26.87
$ 42.38 - $ 48.88 .......................... 70,000 8.0 $43.77 26,000 $46.13
$ 70.00 - $ 70.00 .......................... 15,000 8.3 $70.00 15,000 $70.00
--------- -----------
$ 1.33 - $ 70.00 .......................... 3,473,927 6.9 $12.19 2,073,513 $ 9.99
========= =========
Transactions involving stock option awards under the Plans during 1999, 2000
and 2001 are summarized as follows:
Number Weighted-Average
of Shares Exercise Price
--------- ----------------
Balance outstanding, December 31, 1998 ......... 2,288,298 $ 6.89
1999: Granted (1) .............................. 254,500 $14.12
Cancelled................................... (24,866) $10.12
Exercised................................... (201,269) $ 4.32
Expirations................................. (3,600) $15.33
---------
Balance outstanding, December 31, 1999 ......... 2,313,063 $ 7.86
---------
2000: Granted (1) .............................. 809,500 $30.61
Cancelled................................... (39,100) $24.22
Exercised................................... (206,295) $ 5.39
Expirations................................. (38,724) $ 1.33
---------
Balance outstanding, December 31, 2000 ......... 2,838,444 $14.39
---------
2001: Granted (1) .............................. 906,850 $16.20
Cancelled................................... (192,750) $54.44
Exercised................................... (25,967) $ 6.39
Expirations................................. (52,650) $47.89
---------
Balance outstanding, December 31, 2001 ......... 3,473,927 $12.19
=========
- ---------------
(1) For 886,600 in 2001, 805,500 in 2000 and 248,000 in 1999, the option
exercise price equaled the fair value of the Company's common stock on
the date of grant. For 2001, 2000 and 1999, 20,250, 4,000 and 6,500
options, respectively, 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, 1999, 2000 and 2001, 1,316,494, 1,500,728 and 2,073,513
options with weighted average exercise prices of $6.84, $8.91 and $9.99,
respectively, were exercisable under the Plans.
As of December 31, 2001, shares available for future grants under the 93
Plan and the 96 Plan amounted to 37,028 and 901,150, respectively.
F-19
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Stock Option and Employee Stock Purchase Plans -- (Continued)
The Company, prior to the year ended December 31, 1999, granted options with
exercise prices 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 ("Unamortized
Compensation"). The Unamortized Compensation as of December 31, 1999, 2000 and
2001 has been included within stockholders equity. For the years ended
December 31, 1999, 2000 and 2001, the annual amortization of Unearned
Compensation totaled $519,876, $428,898 and $139,094, respectively.
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, respectively, of the Company's Common Stock at the date of
grant, as determined by the Board of Directors. As of December 31, 2001, all
options are fully vested and 474,774 remain outstanding.
The following table summarizes stock option information for the Executive
Plan as of December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Exercise Prices Number Remaining Exercise Number Exercise
- ------------------------ Outstanding Contractual Life Price Exercisable Price
----------- ---------------- --------- ----------- ---------
$ 5.33 ..................................... 474,774 5.9 $5.33 474,774 $5.33
On May 1, 1998, the Company adopted two employee stock purchase plans (the
"Purchase Plans"), the 1998 Employee Stock Purchase Plan (the "Qualified
Plan)" and the 1998 Non-Qualified Employee Purchase Plan (the "Non-
Qualified"). The Purchase Plans provide for the grant to all employees of
options to use up to 25% of their quarterly compensation, as such percentage
is determined by the Board of Directors prior to the date of grant, to
purchase shares of the Common Stock at a price per share equal to the lesser
of the fair market value of the Common Stock on the date of grant or 85% of
the fair market value on the date of exercise. Options are granted
automatically on the first day of each fiscal quarter and expire six months
after the date of grants. The Qualified Plan is not available for employees
owning more than 5% of the Common Stock and imposes certain other quarterly
limitations on the option grants. Options under the Non-Qualified Plan are
granted to the extent the option grants are restricted under the Qualified
Plan. The Qualified and Non-Qualified Plans provide for the issuance of up to
150,000 and 50,000 shares of Common Stock, respectively.
Purchases of Common Stock during the years ended December 31, 1999, 2000 and
2001 are summarized as follows:
Qualified Plan Non-Qualified Plan
--------------------------- ----------------------------
Shares Shares
Purchased Price Range Purchased Price Range
--------- --------------- --------- ----------------
2001.................................................. 64,160 $ 9.46 - $18.25 4,069 $ 9.46 - $16.24
2000.................................................. 37,245 $12.61 - $60.00 4,873 $14.125 - $60.00
1999.................................................. 28,742 $10.00 - $27.05 3,455 $10.00 - $24.79
F-20
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Stock Option and Employee Stock Purchase Plans -- (Continued)
At December 31, 2001, shares reserved for future purchases under the
Qualified and Non-Qualified Plans were 16,359 and 37,603, respectively.
The following table summarizes the pro forma operating results of the
Company had compensation costs for the Plans, the Executive Plan and the
Purchase Plans 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 1999, 2000 and 2001 vest over several years
and additional awards are expected to be issued in the future, the pro forma
results shown below are not likely to be representative of the effects on
future years of the application of the fair value based method.
Years Ended December 31,
-----------------------------------------
1999 2000 2001
----------- ------------ -----------
Pro forma net loss ...................................................... $(2,270,184) $(12,975,514) $(7,300,479)
=========== ============ ===========
Pro forma net loss per share, basic and diluted ......................... $ (0.23) $ (0.58) $ (0.59)
=========== ============ ===========
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 following assumptions were used in computing the
fair value of option grants: expected volatility of 71% in 1999, 93% in 2000
and 86% in 2001, expected lives of 5 years after vesting; zero dividend yield
and weighted-average risk-free interest rates of 5.28% in 1999, 6.3% in 2000
and 4.7% in 2001.
During the years ended December 31, 1999, 2000 and 2001, 248,000, 805,000
and 886,600 options, respectively, whose exercise price was equal to the
market price of the stock on the date of grant were granted under the Plans.
The weighted average exercise price of those options was $14.25, $30.68 and
$16.34, respectively, and the weighted average grant date fair value of those
options was $8.91, $22.92 and $11.49, respectively. During the years ended
December 31, 1999, 2000 and 2001, 6,500, 4,000 and 20,250 options whose
exercise price was less than the market price of the stock on the date of
grant were granted under the Plans. The weighted average exercise price of
those options was $9.09, $15.88 and $9.93, respectively, and the weighted
average grant date fair value was $10.78, $42.64 and $12.10, respectively.
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 100% 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 $95,000, $256,541 and $316,719 to the Amended
Plan for the years ended December 31, 1999, 2000 and 2001, respectively.
11. Income Taxes
There is no benefit for federal or state income taxes for the years ended
December 31, 2001, 2000 and 1999, since the Company has incurred an operating
loss and has established a valuation allowance equal to the total deferred tax
asset.
F-21
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
11. Income Taxes -- (Continued)
The tax effect of temporary differences, net operating losses and tax
credits carryforwards as of December 31, 2000 and 2001 are as follows:
December 31,
----------------------------
2000 2001
------------ ------------
Deferred tax assets and valuation allowance:
Net operating loss carry-forwards .............. $ 13,724,367 $ 15,202,535
Fixed assets ................................... 270,377 314,150
Deferred charges ............................... 1,672,977 1,430,280
Research and experimental tax credit carry-
forwards...................................... 2,482,858 1,956,378
Alternative minimum tax credit carry-forward ... 211,384 211,384
Valuation allowance ............................ (18,361,963) (19,114,727)
------------ ------------
$ -- $ --
============ ============
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, 2001, the Company has available, for tax purposes, unused
net operating loss carryforwards of approximately $37.7 million which will
expire in various years from 2002 to 2021. The Company's research and
experimental tax credit carryforwards expire in various years from 2003 to
2021. 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.
12. Net Loss Per Share
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period. For the years ended December 31, 2001, 2000 and 1999, the
Company reported a net loss and, therefore, common stock equivalents were not
included since such inclusion would have been anti-dilutive. The calculations
of net loss per share, basic, and diluted are as follows:
Weighted Average
Net Loss Common Shares Per Share
(Numerator) Denominator Amount
----------- ---------------- ---------
2001:
Basic and diluted.................................................. $(1,898,150) 12,376,056 $ (0.15)
=========== =======
2000:
Basic and diluted.................................................. $(5,917,156) 12,137,653 $ (0.49)
=========== =======
1999:
Basic and diluted.................................................. $ (495,535) 9,728,403 $ (0.05)
=========== =======
F-22
PROGENICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
12. Net Loss Per Share -- (Continued)
For the years ended December 31, 1999, 2000 and 2001 common stock
equivalents which have been excluded from diluted per share amounts because
their effect would have been anti-dilutive, include the following:
1999 2000 2001
----------------------------- ----------------------------- ----------------------------
Weighted Average Weighted Average Weighted Average
Number Exercise Price Number Exercise Price Number Exercise Price
--------- ---------------- --------- ---------------- --------- ----------------
Options and Warrants .............. 3,148,754 $7.05 3,442,455 $12.37 3,685,245 $11.86
13. Unaudited Quarterly Results
Summarized quarterly financial data for the years ended December 31, 2001
and 2000 are as follows:
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- -------------
Revenue............................................ $ 5,846,784 $ 1,406,727 $ 2,311,076 $ 2,667,453
Net income (loss).................................. 461,249 5,161,305 (3,041,838) (4,478,866)
Net income (loss) per share
Basic ............................................ 0.04 0.42 (0.25) (0.36)
Diluted .......................................... 0.03 0.37 (0.25) (0.36)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- -------------
Revenue............................................ $ 3,374,247 $ 3,351,499 $ 3,700,707 $ 3,522,976
Net (loss)......................................... (1,471,967) (1,394,740) (587,073) (2,463,376)
Net (loss) per share
Basic and diluted ................................ (0.12) (0.11) (0.05) (0.20)
F-23
Report of Independent Accountants
To the Board of Directors and Stockholders of
PSMA Development Company LLC:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' (deficit) equity and of cash flows present
fairly, in all material respects, the financial position of PSMA Development
Company LLC (the "Company") (a development stage enterprise) at December 31,
2000 and 2001, and the results of its operations and its cash flows for the
periods from June 15, 1999 (inception) to December 31, 1999, the years ended
December 31, 2000 and 2001 and the cumulative period from June 15, 1999
(inception) to December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the United States of America which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 15, 2002
F-24
PSMA Development Company LLC
(a development stage enterprise)
Balance Sheets
December 31,
-------------------------
2000 2001
----------- -----------
ASSETS
Current assets:
Cash ............................................. $ 208,729 $ 1,009,929
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable .................................. $ 607,258 $ 351,333
----------- -----------
Total liabilities............................... 607,258 351,333
----------- -----------
Capital contributions ............................. 3,122,289 6,798,424
Contribution receivable, Progenics
Pharmaceuticals, Inc............................. (457,251) (500,000)
Deficit accumulated during the development stage .. (3,063,567) (5,639,828)
----------- -----------
Total stockholders' (deficit) equity............ (398,529) 658,596
----------- -----------
Total liabilities and stockholders' (deficit)
equity........................................... $ 208,729 $ 1,009,929
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-25
PSMA Development Company LLC
(a development stage enterprise)
Statements of Operations
June 15, 1999 Cumulative from
(inception) to June 15, 1999
through Year Ended Year Ended (inception) to
December 31, 1999 December 31, 2000 December 31, 2001 December 31, 2001
----------------- ----------------- ----------------- -----------------
Revenue:
Interest income ................................ $ 72,813 $ 96,233 $ 47,111 $ 216,157
----------- ---------- ----------- -----------
Expenses:
Research and development ....................... 223,520 901,835 2,073,768 3,199,123
General and administrative ..................... 53,911 96,096 206,856 356,863
Interest ....................................... 72,813 87,504 42,748 203,065
Licensing fees ................................. 1,796,934 300,000 2,096,934
----------- ---------- ----------- -----------
Total expenses................................ 2,147,178 1,085,435 2,623,372 5,855,985
----------- ---------- ----------- -----------
Net Loss...................................... $(2,074,365) $ (989,202) $(2,576,261) $(5,639,828)
=========== ========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-26
PSMA Development Company LLC
(a development stage enterprise)
Statements of Stockholders' (Deficit) Equity
For the period from June 15, 1999 (inception) to December 31, 2001,
including the period from June 15, 1999 (inception) to December 31 1999,
and the years ended December 31, 2000 and 2001
Capital Contribution Accumulated Comprehensive
Contributions Receivable Deficit Total Loss
------------- ------------ ----------- ----------- -------------
Capital contributions................................ $2,220,454 $ 2,220,454
Contribution receivable, Progenics Pharmaceuticals
Inc.
License Fee........................................ $(796,934) (796,934)
Amortization of discount on capital contribution..... (72,813) (72,813)
Net loss for the period from June 15, 1999
(inception) to December 31, 1999................... $(2,074,365) (2,074,365) $(2,074,365)
---------- --------- ----------- ----------- -----------
Balance at December 31, 1999........................ 2,220,454 (869,747) (2,074,365) (723,658)
Capital contributions................................ 901,835 901,835
Amortization of discount on capital contribution..... (87,504) (87,504)
Contribution receivable, Progenics Pharmaceuticals
Inc.
License Fee........................................ 500,000 500,000
Net loss for the year ended December 31, 2000........ (989,202) (989,202) (989,202)
---------- --------- ----------- ----------- -----------
Balance at December 31, 2000........................ 3,122,289 (457,251) (3,063,567) (398,529)
Amortization of discount on capital contribution..... (42,749) (42,749)
Capital contributions................................ 3,676,135 500,000 4,176,135
Contribution receivable, Progenics Pharmaceuticals
Inc................................................ (500,000) (500,000)
Net loss for the year ended December 31, 2001........ (2,576,261) (2,576,261) (2,576,261)
---------- --------- ----------- ----------- -----------
Balance at December 31, 2001........................ $6,798,424 $(500,000) $(5,639,828) $ 658,596
========== ========= =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-27
PSMA Development Company LLC
(a development stage enterprise)
Statements of Cash Flows
Cumulative from
June 15, 1999 June 15, 1999
(Inception) to Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31,
1999 2000 2001 2001
-------------- ------------ ------------ ---------------
Cash flows from operating activities:
Net loss ...................................................... $(2,074,365) $ (989,202) $(2,576,261) $(5,639,828)
Amortization of discount on capital contribution .............. (72,813) (87,504) (42,749) (203,066)
Adjustment to reconcile net loss to net cash used in operating
activities:
Increase (decrease) in accounts payable...................... 923,658 (316,400) (255,925) 351,333
----------- ----------- ----------- -----------
Net cash used in operating activities ...................... (1,223,520) (1,393,106) (2,874,935) (5,491,561)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Capital contributions ......................................... 2,220,454 901,835 3,676,135 6,798,424
Contributions receivable from Progenics Pharmaceuticals, Inc. . (796,934) 500,000 -- (296,934)
----------- ----------- ----------- -----------
Net cash provided by financing
activities................................................ 1,423,520 1,401,835 3,676,135 6,501,490
----------- ----------- ----------- -----------
Increase in cash and cash equivalents ...................... 200,000 8,729 801,200 1,009,929
----------- ----------- ----------- -----------
Cash and cash equivalents at beginning
of period..................................................... -- 200,000 208,729 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ..................... $ 200,000 $ 208,729 $ 1,009,929 $ 1,009,929
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-28
PSMA Development Company LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business
PSMA Development Company LLC (the "JV") was formed on June 15, 1999 as a
joint venture between Progenics Pharmaceuticals, Inc. ("Progenics") and
CYTOGEN Corporation ("CYTOGEN") (collectively, the "Members") for the purposes
of conducting research, development, manufacturing and marketing of products
related to prostate-specific membrane antigen ("PSMA"). Each has equal
representation on the JV's management committee and equal voting rights and
rights to profits and losses of the JV, as defined. In connection with the
formation of the JV, the Members entered into a series of agreements,
including an LLC Agreement, a Licensing Agreement and a Services Agreement
(collectively, the "Agreements") which define the obligations of each Member
as to future capital contributions and funding of research and development of
the JV (see Note 3). As of December 31, 2001, the Members have committed to
fund the JV for a period beyond one additional year.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The JV 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. At December 31, 2001, cash consisted of a single interest bearing
money market account in a commercial bank.
Revenue Recognition
Interest income from the investment of excess cash balances is recognized as
earned. Interest income from the amortization of discount is recognized
ratably over the term of the financial instrument.
Research and Development
Research and development costs are expenses as incurred.
Concentrations of Credit Risk
Financial instruments which potentially subject the JV to concentration of
credit risk consist of cash and receivables from Members.
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. Actual results could differ from those estimates.
Income Taxes
The JV's financial statements do not include a provision (credit) for income
taxes. Income taxes, if any, are the liability of the individual Members.
3. Joint Venture Agreements
In connection with the formation of the JV, the Members entered into a
series of agreements, including an LLC Agreement, a Licensing Agreement and a
Services Agreement. Under the terms of the LLC Agreement, Progenics is
required to pay to the JV $2.0 million in supplemental capital contributions
at certain defined dates or upon the achievement of defined milestones by the
JV.
F-29
PSMA Development Company LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Joint Venture Agreements -- (Continued)
In accordance with the Agreements, Progenics' $2.0 million supplemental
capital contribution was used by the JV to pay a $2.0 million non-refundable
licensing fee to CYTOGEN (the "CYTOGEN Payment"). The payment terms of the
CYTOGEN Payment are identical to the payment terms of Progenics' required
supplemental capital contribution. Since it was probable that Progenics would
be required to fund the $2.0 million supplemental capital contribution and
that the JV would be required to pay the licensing fee to CYTOGEN, the JV,
upon execution of the Agreements, recognized a receivable and payable from
Progenics and CYTOGEN, respectively, for $1,796,934. Such amount represented
the present value of the supplemental capital contribution and the CYTOGEN
Payment discounted at 10%. The discount on those payments was amortized
ratably over the term of the LLC Agreement as interest income and interest
expense. During the period from June 15, 1999 (inception) to December 31,
1999, and the years ended December 31, 2000 and 2001, the JV received $1.0
million, $500,000 and $500,000, respectively, from Progenics which was, in
turn, paid to CYTOGEN during that same periods. In addition, $72,813, $87,504
and $42,749 of discount was amortized during the period from June 15, 1999
(inception) to December 31, 1999 and the years ended December 31, 2000 and
2001, respectively.
Under the terms of the Services Agreement, Progenics is engaged in a
research program on behalf of the JV. Progenics is required to fund the cost
of the research up to $3.0 million and is compensated based on agreed upon
terms. As of December 31, 2001, Progenics had surpassed the $3.0 million in
funding for research costs. Accordingly, each Member was required to
contribute $650,000 to fund future research costs and will share such costs
equally. All inventions made by Progenics in connection with the Services
Agreement will be assigned to the JV for its use and benefit.
The Agreements terminate upon the last to expire of the patents granted by
the Members to the JV or upon breach by a Member which is not cured within 60
days of written notice.
4. Collaboration Agreements
i. AlphaVax Human Vaccines, Inc.
In September 2001, the Joint Venture entered into a worldwide exclusive
licensing agreement with AlphaVax Human Vaccines, Inc. (the "AVX Agreement"),
to use the AlphaVax Replicon Vector (ArVTM) system (the "AVRV System") to
create a therapeutic prostate cancer vaccine incorporating the joint venture's
proprietary PSMA antigen. In consideration for the license, the Joint Venture
paid a nonrefundable, noncreditable license fee and is obligated to pay
additional payments upon the occurrence of certain defined milestones
associated with the development and commercialization program for products
incorporating the AVRV System (the "Products"). In addition, the Joint Venture
is required to pay royalties based upon net sales of the Products, subject to
certain set off rights of the Joint Venture under defined circumstances. The
AVX Agreement may be terminated, after an opportunity to cure, by AlphaVax
under specified circumstances that include the Joint Venture's failure to
achieve certain milestones; however the consent of AlphaVax to revisions to
the due dates for the milestones shall not be unreasonably withheld. If not
terminated early, the AVX Agreement continues until the later of the
expiration of the AVRV System patents or defined period. The Joint Venture has
the right to terminate the AVX Agreement upon 30 days prior written notice.
The termination of the AVX Agreement could have a material adverse effect on
the business of the Joint Venture. Although the Joint Venture intends to use
its best efforts to comply with the terms of the AVX Agreement, there can be
no assurances that the agreement will not be terminated.
ii. Abgenix, Inc.
In February 2001, the Joint Venture entered into a worldwide exclusive
licensing agreement with Abgenix, Inc. (the "ABX Agreement"), to use Abgenix'
XenoMouse technology (the "XenoMouse Technology") for generating fully human
antibodies to the Joint Venture's proprietary PSMA antigen. In consideration
for the license, the Joint Venture paid a nonrefundable, noncreditable license
fee and is obligated to pay additional
F-30
PSMA Development Company LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
4. Collaboration Agreements -- (Continued)
payments upon the occurrence of certain defined milestones associated with the
development and commercialization program for products incorporating an
antibody generated utilizing the XenoMouse Technology (the "Antibody
Products"). In addition, the Joint Venture is required to pay royalties based
upon net sales of the Antibody Products, subject to certain set off rights of
the Company under defined circumstances. The ABX Agreement may be terminated,
after an opportunity to cure, by Abgenix for cause upon 30 days prior written
notice. If not terminated early, the ABX Agreement continues until the later
of the expiration of the XenoMouse Technology patents or defined period. The
Company has the right to terminate the ABX Agreement upon 30 days prior
written notice. The termination of the ABX 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 ABX Agreement, there can
be no assurances that the agreement will not be terminated.
In connection with all the agreements discussed above, the JV has recognized
contractual payments, which are included in research and development expenses,
totaling approximately $100,000 and license fees totaling $300,000 for the
year ended December 31, 2001. In addition, remaining payments associated with
milestones and defined objectives with respect to the above agreements total
approximately $14.1 million. Future annual minimum royalties under the
agreements described in (i) and (ii) above, are not significant.
F-31
EXHIBIT INDEX
Exhibit
Number Description
*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 and Restated 1996 Stock Incentive Plan ++
*10.6 Form of Indemnification Agreement ++
****10.7 Employment Agreement dated December 22, 1998 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 Employment Agreement dated as of June 10, 1998 between the Registrant
and Ronald J. Prentki, as amended by Amendment No. 1 to the Employment
Agreement dated as of October 8, 1998 ++
*+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
*+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 Amended and Restated Sublease dated June 6, 2000 between the Registrant
and Crompton Corporation
*+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
Exhibit
Number Description
*+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
*****+10.33 Development and License Agreement effective as of April 30, 1999,
between Protein Design Labs, Inc. and the Registrant
*****+10.34 PSMA/PSMP License Agreement dated June 15, 1999, by and among the
Registrant, Cytogen Corporation and PSMA Development Company LLC
*****+10.35 Limited Liability Company Agreement of PSMA Development Company, dated
June 15, 1999, by and among the Registrant, Cytogen Corporation and
PSMA Development Company LLC
*******10.36 Director Stock Option Plan ++
*********10.37 Employment Agreement dated as of May 16, 2001 between the Registrant
and Ronald J. Prentki ++
23.1 Consent of PricewaterhouseCoopers LLP (regarding the Registrant)
23.2 Consent of PricewaterhouseCoopers LLP (regarding PSMA Development
Company LLC)
- ---------------
* 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.
*** Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998, and
incorporated by reference herein.
**** Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, and incorporated by
reference herein.
***** Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999, and
incorporated by reference herein.
****** Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999, and
incorporated by reference herein.
******* Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, and incorporated by
reference herein.
******** Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2000, and
incorporated by reference herein.
********* Previously filed as an exhibit to the Company's Quarterly Report on
From 10-Q for the quarter period ended September 30, 2001, 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.