Progenics 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 commenced principal operations in late 1988 and since that time has been engaged primarily in research and development efforts, development of it’s manufacturing capabilities, establishment of corporate collaborations and raising capital. In order to commercialize the principal products that the Company has under development, the Company will need to address a number of technological challenges and comply with comprehensive regulatory requirements. Accordingly, it is not possible to predict the amount of funds that will be required or the length of time that will pass before the Company receives revenues from sales of any of its products. To date, product sales have consisted solely of limited revenues from the sale of research reagents. The Company expects that sales of research reagents in the future will not significantly increase over current levels. The Company’s other sources of revenues through September 30, 2002 have been payments received under its collaboration agreements and from the Company’s joint venture with Cytogen Corp., research grants and contracts related to the Company’s cancer and HIV programs and interest income.

To date, a majority of the Company’s expenditures have been for research and development activities. The Company expects that its research and development expenses will increase significantly as its programs progress and the Company makes filings for related regulatory approvals. With the exception of the years ended December 31, 1997 and 1998, the Company has had recurring losses and had, at September 30, 2002, an accumulated deficit of approximately $39,287,000. The Company will require additional funds to complete the development of its products, to fund the cost of clinical trials, and to fund operating losses that are expected to continue for the foreseeable future. The Company does not expect its products under development to be commercialized in the near future.

Contract research and development revenue from joint venture increased to approximately $1,817,000 for the three months ended September 30, 2002 from $0 for the three months ended September 30, 2001. The Company recognizes revenue for research and development services performed for the PSMA Development Company, LLC, the Company’s joint venture with Cytogen Corporation, (the “JV”). No such revenue was recognized in the third quarter of 2001 because the Company was required to fund the first $3.0 million of research and development costs and such amounts were recorded as capital contributions to the JV. That threshold was reached in the fourth quarter of 2001. Other contract research and development revenue decreased to zero for the three months ended September 30, 2002 from approximately $306,000 for the three months ended September 30, 2001. The Company did not perform any contract research and development services in the third quarter of 2002 other than that for the JV. Revenues from research grants decreased to approximately $916,000 for the three months ended September 30, 2002 from approximately $1,072,000 for the three months ended September 30, 2001. The decrease resulted from the funding of a fewer number of grants. Interest income decreased to approximately $390,000 for the three months ended September 30, 2002 from approximately $924,000 for the three months ended September 30, 2001 as cash available for investment decreased and was subject to lower interest rates in 2002.

Research and development expenses increased to approximately $6,657,000 for the three months ended September 30, 2002 from approximately $3,457,000 for the three months ended September 30, 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) and increased spending in the PSMA programs.

General and administrative expenses increased to approximately $1,599,000 for the three months ended September 30, 2002 from approximately $1,000,000 for the three months ended September 30, 2001. The increase was principally due to an increase in professional fees for legal and patent work and an increase in headcount, related benefits and operating expenses.

Loss in joint venture increased to approximately $1,000,000 for the three months ended September 30, 2002 from approximately $707,000 for the three months ended September 30, 2001. The Company recognizes its share of the loss under the terms of the joint venture with Cytogen Corporation. The increase was due to an increase in the headcount assigned to the PSMA project and the related cost of supplies. Additionally, prior to reaching the $3.0 million threshold, the Company recognized 100% of the joint venture’s research and development expenses; that percentage was reduced to 50% subsequent to reaching that threshold in December 2001.

Interest expense decreased to $0 for the three months ended September 30, 2002 from approximately $12,000 for the three months ended September 30, 2001. The decrease was due to the payoff of the remaining capital leases outstanding.

Depreciation expense increased to approximately $289,000 for the three months ended September 30, 2002 from approximately $176,000 for the three months ended September 30, 2001 as new capital equipment was purchased and leasehold improvements were incurred in connection with the Company’s growth.

The Company’s net loss for the three months ended September 30, 2002 was approximately $6,412,000 compared to net income of approximately $3,042,000 for the three months ended September 30, 2001.

Contract research and development revenue from joint venture increased to approximately $3,901,000 for the nine months ended September 30, 2002 from zero for the nine months ended September 30, 2001. The Company recognizes revenue for research and development services performed for the PSMA Development Company, LLC, the Company’s joint venture with Cytogen Corporation. No such revenue was recognized in the first nine months of 2001 because the Company was required to fund the first $3.0 million of research and development costs and such amounts were recorded as capital contributions to the JV. That threshold was reached in the fourth quarter of 2001. Other contract research and development revenue decreased to approximately $194,000 for the nine months ended September 30, 2002 from approximately $4,710,000 for the nine months ended September 30, 2001. The Company received no contract research and development funding during the nine months ended September 30, 2002 pursuant to the Company’s terminated agreement with BMS compared to $3,674,000 for the nine months ended September 30, 2001. Revenues from contract research and development performed for other collaborators decreased to approximately $194,000 for the nine months ended September 30, 2002 from approximately $1,036,000 for the nine months ended September 30, 2001 as the Company’s commitments for such work were completed. Revenues from research grants increased to approximately $3,643,000 for the nine months ended September 30, 2002 from approximately $2,877,000 for the nine months ended September 30, 2001, resulting from the funding of a greater number of grants in the first nine months of 2001. Product sales decreased to approximately $28,000 for the nine months ended September 30, 2002 from approximately $37,000 for the nine months ended September 30, 2001. Interest income decreased to approximately $1,410,000 for the nine months ended September 30, 2002 from approximately $1,941,000 for the nine months ended September 30, 2001 as cash available for investment decreased and was subject to lower interest rates in 2002.

Research and development expenses increased to approximately $17,089,000 for the nine months ended September 30, 2002 from approximately $10,479,000 for the nine months ended September 30, 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) and increased spending in its PSMA programs.

General and administrative expenses increased to approximately $4,608,000 for the nine months ended September 30, 2002 from approximately $4,162,000 for the nine months ended September 30, 2001. The increase was principally due to a decrease in professional fees for legal and patent work and an increase in headcount, related benefits and operating expenses.

Loss in joint venture increased to approximately $2,108,000 for the nine months ended September 30, 2002 from approximately $1,645,000 for the nine months ended September 30, 2001. The Company recognizes its share of the loss under the terms of the joint venture with Cytogen Corporation. The increase was due to an increase in the headcount assigned to the PSMA project and the related cost of supplies. Additionally, prior to reaching the $3.0 million threshold, the Company recognized 100% of the joint venture’s research and development expenses; that percentage was reduced to 50% subsequent to reaching that threshold in December 2001.

Interest expense decreased to $0 for the nine months ended September 30, 2002 from approximately $36,000 for the nine months ended September 30, 2001. The decrease was due to the payoff of the remaining capital leases outstanding.

Depreciation expense increased to approximately $738,000 for the nine months ended September 30, 2002 from approximately $513,000 for the nine months ended September 30, 2001 as new capital equipment was purchased and leasehold improvements were incurred in connection with the Company’s growth.

In the first nine months of 2002, the Company received a $1.6 million insurance settlement in connection with a casualty loss that had occurred in 2001. The Company also received a non-recurring payment of approximately $9,852,000 from BMS during the second quarter of 2001 in connection with the termination of the collaboration.

The Company’s net loss for the nine months ended September 30, 2002 was approximately $13,768,000 compared to net income of approximately $2,581,000 for the nine months ended September 30, 2001.

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, and as a result 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.

At September 30, 2002, we had cash, cash equivalents and marketable securities, including non-current portion, totaling approximately $47,426,000 compared with approximately $61,877,000 at December 31, 2001. For the nine months ended September 30, 2002, net cash used in operating activities was approximately $13.2 million. The Company had approximately $24.5 million of expenses, including research and development of $17.1 million, general and administrative of $4.6 million and a decrease in accounts payable and accrued expenses of $1.4 million, offset by total revenues of $10.8 million comprised of $4.1 of contract research development revenue, $3.6 of revenue from government grants, $1.4 million of interest income, and $1.6 million from the settlement of an insurance claim. The Company is required to fund 50% of the current and future spending on the PSMA projects under the terms of the JV. Such amount was approximately $2.3 million during the first nine months of 2002. Net cash provided by investing activities was approximately $8.5 million resulting from the sale of marketable securities offset by capital expenditures of approximately $1.2 million as we have acquired additional space and our facility lease has been extended to June 2005. Net cash provided by financing activities was approximately $1.1 million due to the exercise of stock options under the Company’s Employee Stock Option Plans, the exercise of warrants and the sale of common stock under the Employee Stock Purchase Plans.

For the three and nine months ended September 30, 2002, the Company recognized approximately $1,817,000 and $3,901,000, respectively, of contract research and development revenue for services performed on behalf of the JV. The level of future revenues from the JV will be dependent upon the extent of research and development services requested by the JV, the future financial position of the JV and the form and content of subcontractor arrangements entered into by the JV.

We have no off-balance sheet arrangements and do not guarantee the obligations of any other entity.

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.

In April 2002, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 145 (“FAS 145”) “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002”. As a result, the accounting for gains and losses from extinguishment of debt and sale-leaseback transactions will be affected by FAS 145. The provisions of this Statement related to the rescission of Statement 4, 44 and 64 shall be applied in fiscal years beginning after May 15, 2002. The provisions of this Statement related to Statement 13 shall be effective for transactions occurring after May 15, 2002.

In June 2002, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 146 (“FAS 146”) “Accounting for Costs Associated with Exit or Disposal Activities”. FAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.rather than on the date of an entity’s commitment to an exit plan and establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement shall be effective for exit or disposal activities initiated after December 31, 2002. The provisions of Issue 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of Issue 94-3 prior to this Statement’s initial application.

Management believes that the future adoption of these accounting standards will not have a material impact on the Company’s financial statements.

Our primary investment objective is to preserve principal while maximizing yield without significantly increasing our risk. Our investments consist of taxable auction securities, euro dollar bonds, and corporate notes. Our investments totaled $38.5 million at September 30, 2002. Approximately $31.5 million of these investments had fixed interest rates, and $7.0 million had interest rates that were variable.

Due to the conservative nature of our short-term fixed interest rate investments, we do not believe that we have a material exposure to interest rate risk. Our fixed interest rate long-term investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these investments due to differences between the market interest rate and the rate at the date of purchase of the investment. A 100 basis point increase in the September 30, 2002 market interest rates would result in a decrease of approximately $0.20 million in the market values of these investments.

The Company maintains “disclosure controls and procedures”, as such term is defined under Exchange Act Rules13a-14(c) and 15d-14, that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Finance and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We also established a disclosure committee which consists of certain members of the Company's senior management.

After the formation of our disclosure committee and within the 90 days prior to the date of filing of this report, the disclosure committee, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Finance and Accounting Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Principal Finance and Accounting Officer concluded that the Company’s disclosure controls and procedures were effective in ensuring that material information relating to the Company is made known to the Chief Executive Officer and Principal Finance and Accounting Officer by others within the Company during the period in which this report was being prepared.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date the Company completed its evaluation.