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EX-32 - EXHIBIT 32 - PROGENICS PHARMACEUTICALS INCex_97781.htm
EX-31.2 - EXHIBIT 31.2 - PROGENICS PHARMACEUTICALS INCex_97780.htm
EX-31.1 - EXHIBIT 31.1 - PROGENICS PHARMACEUTICALS INCex_97779.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File No. 000-23143


 

PROGENICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware

13-3379479

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)


One World Trade Center, 47th Floor
New York, NY 10007
(Address of principal executive offices, including zip code)

 

Registrants telephone number, including area code: (646) 975-2500

 

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 No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ☐

 

Accelerated filer   ☒

Non-accelerated filer    ☐  (Do not check if a smaller reporting company)

 

Smaller reporting company   ☐

Emerging growth company

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extendedtransition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐  No ☒

 

As of October 30, 2017, a total of 70,269,849 shares of common stock, par value $0.0013 per share, were outstanding.

 

 

PROGENICS PHARMACEUTICALS, INC.

 

INDEX

 

 

 

Page No.

Part I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

Condensed Consolidated Statement of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 6.

Exhibits

30

 

Signatures

31

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

 

 

(unaudited)

   

(audited)

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 98,279     $ 138,909  

Accounts receivable, net

    2,619       4,864  

Other current assets

    1,662       4,328  

Total current assets

    102,560       148,101  
                 

Property and equipment, net

    4,352       4,760  

Intangible assets, net

    30,422       30,581  

Goodwill

    13,074       13,074  

Other assets

    2,474       2,470  

Total assets

  $ 152,882     $ 198,986  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 1,116     $ 567  

Accrued expenses

    10,104       15,790  

Current portion of debt, net

    1,839       -  

Total current liabilities

    13,059       16,357  
                 

Long-term debt, net

    47,786       49,453  

Contingent consideration liability

    17,500       14,200  

Deferred tax liability

    13,010       13,010  

Other liabilities

    1,447       1,204  

Total liabilities

    92,802       94,224  
                 

Commitments and Contingencies

               

Stockholders’ equity:

               

Preferred stock, $0.001 par value Authorized - 20,000 shares; issued and outstanding - none

    -       -  

Common stock, $0.0013 par value Authorized - 160,000 shares; issued - 70,470 shares in 2017 and 70,390 shares in 2016

    92       92  

Additional paid-in capital

    601,684       598,069  

Treasury stock at cost, 200 shares of common stock

    (2,741 )     (2,741 )

Accumulated other comprehensive loss

    (34 )     (85 )

Accumulated deficit

    (538,921 )     (490,573 )

Total stockholders’ equity

    60,080       104,762  

Total liabilities and stockholders’ equity

  $ 152,882     $ 198,986  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Revenue:

                               

Royalty income

  $ 2,562     $ 3,319     $ 7,282     $ 7,888  

License revenue

    129       50,523       491       56,839  

Other revenue

    6       8       36       50  

Total revenue

    2,697       53,850       7,809       64,777  
                                 

Operating expenses:

                               

Research and development

    10,344       9,827       31,641       26,964  

General and administrative

    5,958       7,220       17,986       18,637  

Change in contingent consideration liability

    700       600       3,300       1,400  

Total operating expenses

    17,002       17,647       52,927       47,001  
                                 

Operating (loss) income

    (14,305)       36,203       (45,118)       17,776  
                                 

Other (expense) income:

                               

Interest (expense) income, net

    (1,047)       79       (3,230)       176  

Total other (expense) income

    (1,047)       79       (3,230)       176  
                                 

Net (loss) income

    (15,352)       36,282       (48,348)       17,952  

Net loss attributable to noncontrolling interests

    -       (21)       -       (58)  

Net (loss) income attributable to Progenics

  $ (15,352)     $ 36,303     $ (48,348)     $ 18,010  
                                 

Net (loss) income per share attributable to Progenics - basic

  $ (0.22 )   $ 0.52     $ (0.69 )   $ 0.26  

Weighted-average shares - basic

    70,270       70,013       70,233       69,970  
                                 

Net(loss) income per share attributable to Progenics - diluted

  $ (0.22 )   $ 0.52     $ (0.69 )   $ 0.26  

Weighted-average shares - diluted

    70,270       70,297       70,233       70,006  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Net (loss) income

  $ (15,352)     $ 36,282     $ (48,348)     $ 17,952  

Other comprehensive loss:

                               

Foreign currency translation adjustments

    20       (10)       51       (50)  

Comprehensive (loss) income

    (15,332)       36,272       (48,297)       17,902  

Comprehensive loss attributable to noncontrolling interests

    -       (21)       -       (60)  

Comprehensive (loss) income attributable to Progenics

  $ (15,332)     $ 36,293     $ (48,297)     $ 17,962  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY 

(In thousands)

(Unaudited)

 

                                   

Accumulated

                         
   

Common Stock

   

Additional

           

Other

   

Treasury Stock

   

Total

 
   

Number

           

Paid-in

   

Accumulated

   

Comprehensive

   

Number

           

Stockholders

 
   

of Shares

   

Par Value

   

Capital

   

Deficit

   

Loss

   

of Shares

   

Cost

   

Equity

 

Balance at December 31, 2016

    70,390     $ 92     $ 598,069     $ (490,573)     $ (85)       (200)     $ (2,741)     $ 104,762  

Net loss

    -       -       -       (48,348)       -       -       -       (48,348)  

Foreign currency translation adjustments

    -       -       -       -       51       -       -       51  

Return of purchase premium for noncontrolling interest

    -       -       21       -       -       -       -       21  

Stock-based compensation expense

    -       -       3,124       -       -       -       -       3,124  

Exercise of stock options

    80       -       470       -       -       -       -       470  

Balance at September 30, 2017

    70,470     $ 92     $ 601,684     $ (538,921)     $ (34)       (200)     $ (2,741)     $ 60,080  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2017

   

2016

 

Cash flows from operating activities:

               

Net (loss) income

  $ (48,348)     $ 17,952  

Adjustments to reconcile net loss to net cash used in operating activities:

               

Stock-based compensation expense

    3,124       1,958  

Depreciation and amortization

    832       1,860  

Gain on sale of fixed assets

    10       (291)  

Non-cash interest expense

    172       -  

Change in fair value of contingent consideration liability

    3,300       1,400  

Changes in assets and liabilities:

               

Accounts receivable

    2,245       (403)  

Other current assets

    2,644       1,875  

Other assets

    (4)       (1,027)  

Accounts payable

    527       770  

Accrued expenses

    (5,732)       3,498  

Other current liabilities

    -       (159)  

Other liabilities

    242       (176)  

Net cash (used in) provided by operating activities

    (40,988)       27,257  

Cash flows from investing activities:

               

Purchases of property and equipment

    (263)       (3,261)  

Proceeds from sale of fixed assets

    37       341  

Net cash used in investing activities

    (226)       (2,920)  

Cash flows from financing activities:

               

Return of estimated interest payment for noncontrolling interest

    21       -  

Proceeds from exercise of stock options

    470       510  

Net cash provided by financing activities

    491       510  

Effect of currency rate changes on cash and cash equivalents

    93       (56)  

Net (decrease) increase in cash and cash equivalents

    (40,630)       24,791  

Cash and cash equivalents at beginning of period

    138,909       74,103  

Cash and cash equivalents at end of period

  $ 98,279     $ 98,894  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

Note 1. Summary of Significant Accounting Policies

 

Business

 

Progenics Pharmaceuticals, Inc. and its subsidiaries (“the Company,” “Progenics,” “we,” or “us”) develop innovative medicines and other technologies to target and treat cancer. Our pipeline includes: 1) therapeutic agents designed to precisely target cancer (AZEDRA® and 1095), 2) PSMA-targeted imaging agents for prostate cancer (1404 and PyLTM), and 3) imaging analysis tools.

 

We licensed our first commercial drug, RELISTOR® (methylnaltrexone bromide) subcutaneous injection for the treatment of opioid induced constipation (“OIC”), to Salix Pharmaceuticals, Inc. (a wholly-owned subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”)). RELISTOR received an expanded approval from the U.S. Food and Drug Administration (“FDA”) for the treatment of OIC in patients taking opioids for chronic non-cancer pain, and in July 2016, RELISTOR Tablets were approved by the FDA for the treatment of OIC in adults with chronic non-cancer pain.

 

We have in the past considered opportunities for strategic collaborations, out-licenses, and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and we continue to do so. We may in the future also in-license or acquire additional oncology compounds and/or programs.

 

Our current principal sources of revenue from operations are royalty, development and commercial milestones, and sublicense revenue-sharing payments from Valeant and Bayer AG. Royalty and further milestone payments from RELISTOR depend on success in development and commercialization, which is dependent on many factors, such as Valeant’s efforts, decisions by the FDA and other regulatory bodies, competition from drugs for the same or similar indications, and the outcome of clinical and other testing of RELISTOR.

 

We commenced principal operations in 1988, became publicly traded in 1997, and throughout have been engaged primarily in research and development efforts, establishing corporate collaborations and related activities. Certain of our intellectual property rights are held by wholly owned subsidiaries. All of our U.S. operations are presently conducted at our headquarters in New York, and the operations of our wholly-owned foreign subsidiary, EXINI Diagnostics A.B. (“EXINI”), are conducted at our facility in Lund, Sweden. We operate under a single research and development operating segment.

 

Liquidity

 

At September 30, 2017, we had $98.3 million of cash and cash equivalents, a decrease of $40.6 million from $138.9 million at December 31, 2016. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year from the filing date of this Form 10-Q. We have historically funded our operations to a significant extent from capital-raising and we expect to require additional funding in the future, the availability of which is never guaranteed and may be uncertain. We expect that we may continue to incur operating losses for the foreseeable future.

 

Basis of Presentation

 

Our interim condensed consolidated financial statements have been prepared in accordance with applicable presentation requirements, and accordingly, do not include all information and disclosures necessary for a presentation of our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, these financial statements reflect all adjustments, consisting primarily of normal recurring accruals necessary for a fair statement of results for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year.

 

Our interim condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016. The year-end consolidated balance sheet data in these financial statements were derived from audited financial statements but do not include all disclosures required by GAAP. Certain prior period amounts in our condensed consolidated financial statements have been reclassified to conform to the current period presentation.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Progenics as well as its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

 

 

In December 2015, we commenced a judicial process in Sweden for acquiring the remaining shares of EXINI. On December 8, 2016, a Swedish arbitral tribunal awarded us advanced title to the remaining shares of EXINI and, as of that date, EXINI became a wholly-owned subsidiary with 100% of the voting shares owned by us. In connection with the acquisition of the remaining shares of EXINI, in December 2016, we paid $368 thousand to the minority interest shareholders for the original purchase price and estimated interest, of which a net amount of $21 thousand was returned in 2017.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

 

Foreign Currency Translation

 

Our international subsidiaries generally consider their respective local currency to be their functional currency. Assets and liabilities of these international subsidiaries are translated into U.S. dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the quarter and year-to-date period. Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive loss (“AOCL”) in our condensed consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of our condensed consolidated balance sheets. Realized gains and losses denominated in foreign currencies are recorded in operating expenses in our condensed consolidated statements of operations and were not material to our consolidated results of operations for the three and nine months ended September 30, 2017 or 2016.

 

Property and Equipment

 

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $1.5 million and $0.8 million as of September 30, 2017 and December 31, 2016, respectively. The following table summarizes our property and equipment (in thousands):

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Machinery and equipment

  $ 2,510     $ 1,493  

Leasehold improvements

    1,734       1,640  

Computer equipment

    709       695  

Furniture and fixtures

    879       877  

Construction in progress

    -       893  

Property and equipment, gross

    5,832       5,598  

Less - accumulated depreciation

    (1,480)       (838)  

Property and equipment, net

  $ 4,352     $ 4,760  

 

Note 2. New Accounting Pronouncements

 

Recently Adopted

 

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). The standard simplifies several aspects of accounting for stock-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this standard on January 1, 2017. For the nine months ended September 30, 2017, we recognized all excess tax benefits and tax deficiencies associated with exercise of stock options as income tax expense or benefit as a discrete event. The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

 

Not Yet Adopted

 

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 805): Clarifying the Definition of a Business. The standard narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that this new guidance will reduce the number of transactions that would be accounted for as a business. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. ASU 2017-04 will be effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of the new standard to have a material impact on our consolidated financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18 (“ASU 2016-18”), Statement of Cash Flows (Topic 230) – Restricted Cash. For entities that have restricted cash and are required to present a statement of cash flows, ASU 2016-18 changes the cash flow presentation for restricted cash. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements or statement of cash flows.

 

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on eight (8) cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. Additionally, ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The standard requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. Additionally, ASU 2016-01 eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments on the balance sheet. ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Other than an amendment relating to presenting in comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk (if the entity has elected to measure the liability at fair value), early adoption is not permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

 

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance. This ASU provides that an entity should recognize revenue to depict transfers of promised goods or services to customers in amounts reflecting the consideration to which the entity expects to be entitled in the transaction by: (1) identifying the contract; (2) identifying the contract’s performance obligations; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when or as the entity satisfies the performance obligations. The guidance permits companies to apply the requirements either retrospectively to all prior periods presented or in the year of adoption through a cumulative adjustment by applying a modified retrospective transition method. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the process of identifying performance obligations. We have evaluated our significant revenue contracts and reviewed our current accounting policies and practices. We have identified four primary revenue streams from contracts with customers as part of our assessment: 1) royalties, 2) licensing arrangements, 3) software licensing arrangements, and 4) product sales. While we are still in the process of evaluating the full impact, we have identified certain immaterial historical revenue transactions relating to our software licensing arrangements for which the timing of recognition would have been different under this update. The actual amount of the cumulative adjustment will depend on the timing of revenue recognition of similar transactions at the end of 2017. While we cannot determine the amount based on information currently available, we do not expect it to have a material impact on our consolidated financial statements. We are in the process of updating our revenue accounting policy and implementing changes to our business processes and controls in response to the new update. We will adopt this new revenue recognition standard on January 1, 2018, using the modified retrospective method.

 

Note 3. Net (Loss) Income Per Share

 

Our basic net (loss) income per share attributable to Progenics amounts have been computed by dividing net (loss) income attributable to Progenics by the weighted-average number of common shares outstanding during the period. For the three and nine months ended September 30, 2017, we reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2016, we reported net income, and the computation of diluted earnings per share is based upon the weighted-average number of our common shares and dilutive effect of stock options (determined using the treasury stock method).

 

The calculations of net (loss) income per share, basic and diluted, are as follows (amounts in thousands, except per share data):

 

   

Net (Loss)

                 
   

Income

   

Weighted-Average

         
   

Attributable

   

Shares

         
   

to Progenics

   

Outstanding

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 

Three months ended September 30, 2017

                       

Basic and diluted

  $ (15,352)       70,270     $ (0.22)  

Nine months ended September 30, 2017

                       

Basic and diluted

  $ (48,348)       70,233     $ (0.69)  

Three months ended September 30, 2016

                       

Basic

  $ 36,303       70,013     $ 0.52  

Dilutive effect of stock options

    -       284          

Diluted

  $ 36,303       70,297     $ 0.52  

Nine months ended September 30, 2016

                       

Basic

  $ 18,010       69,970     $ 0.26  

Dilutive effect of stock options

    -       36          

Diluted

  $ 18,010       70,006     $ 0.26  

 

 

The following table summarizes anti-dilutive common shares or common shares where performance conditions have not been met, that were excluded from the calculation of diluted net (loss) income per share (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Stock options

    3,061       3,332       1,989       5,127  

Contingent consideration liability

    2,378       3,342       2,378       3,946  

Total securities excluded

    5,439       6,674       4,367       9,073  

 

 

 

Note 4. Fair Value Measurements

 

To estimate the fair values of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:

 

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access

Level 2 – Valuations for which all significant inputs are observable, either directly or indirectly, other than Level 1 inputs

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement

 

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

 

We believe the carrying amounts of our cash equivalents, accounts receivable, other current assets, other assets, accounts payable and accrued expenses approximated their fair values as of September 30, 2017 and December 31, 2016.

 

We record the contingent consideration liability resulting from our acquisition of Molecular Insight Pharmaceuticals, Inc. (“MIP”) at fair value in accordance with Accounting Standards Codification (“ASC”) 820 (Topic 820, Fair Value Measurement).

 

The following tables summarize each major class of our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy (in thousands):

 

           

Fair Value Measurements at September 30, 2017

 
           

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                     
   

Balance at

September 30,2017

             
                 

Assets:

                               

Money market funds

  $ 94,589     $ 94,589     $ -     $ -  

Total assets

  $ 94,589     $ 94,589     $ -     $ -  
                                 

Liabilities:

                               

Contingent consideration liability

  $ 17,500     $ -     $ -     $ 17,500  

Total liabilities

  $ 17,500     $ -     $ -     $ 17,500  

 

           

Fair Value Measurements at December 31, 2016

 
           

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                     
   

Balance at

December 31, 2016

             
                 

Assets:

                               

Money market funds

  $ 137,340     $ 137,340     $ -     $ -  

Total assets

  $ 137,340     $ 137,340     $ -     $ -  
                                 

Liabilities:

                               

Contingent consideration liability

  $ 14,200     $ -     $ -     $ 14,200  

Total liabilities

  $ 14,200     $ -     $ -     $ 14,200  

 

The contingent consideration liability of $17.5 million as of September 30, 2017 represents the estimated fair value of the future potential milestone payments to former MIP stockholders (shown in the tables below).

 

 

Milestone payments due upon first commercial sale (in thousands):

 

Program    

Consideration

 

Form of Payment at Progenics' Option

AZEDRA

    $ 8,000  

Cash or Progenics common stock

1404       10,000  

Cash or Progenics common stock

1095       5,000  

Cash or Progenics common stock

      $ 23,000    

 

Net sales milestone payments due upon first achievement of specified net sales target in any single calendar year across all MIP-related programs (in thousands):

 

Calendar Year Net Sales Level

 

Consideration

 

Form of Payment at Progenics' Option

$30 million

  $ 5,000  

Cash or Progenics common stock

$60 million

    5,000  

Cash or Progenics common stock

$100 million

    10,000  

Cash or Progenics common stock

$250 million

    20,000  

Cash or Progenics common stock

$500 million

    30,000  

Cash or Progenics common stock

    $ 70,000    

 

We consider this liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success and discount rates.

 

Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively. We record the contingent consideration liability at fair value with changes in estimated fair values recorded in change in contingent consideration liability in our condensed consolidated statements of operations.

 

The following table summarizes quantitative information and assumptions pertaining to the fair value measurement of the Level 3 inputs at September 30, 2017 and December 31, 2016 (in thousands). The increase in the contingent consideration liability of $3.3 million during the nine months ended September 30, 2017 was primarily attributable to the higher probability of success of AZEDRA used to calculate the potential milestone payments to former Molecular Insight Pharmaceuticals, Inc. stockholders and a reduction in the discount period.

 

   

Fair Value at

                   
   

September 30,

                   
   

2017

 

Valuation Technique

 

Unobservable Input

 

Assumption

 

Contingent Consideration Liability:

                         

AZEDRA commercialization

  $ 5,400  

Probability adjusted discounted

 

Probability of success

      72%    
         

cash flow model

 

Period of expected milestone achievement

 

 

  2018    
             

Discount rate

      10%    

1404 commercialization

    5,000  

Probability adjusted discounted 

 

Probability of success

      59%    
         

cash flow model

 

Period of expected milestone achievement

 

 

2019    
             

Discount rate

      10%    

1095 commercialization

    400  

Probability adjusted discounted

 

Probability of success

      16%    
         

cash flow model

 

Period of expected milestone achievement

 

 

  2024    
             

Discount rate

      10%    

Net sales targets

    6,700  

Monte-Carlo simulation

 

Probability of success

    16% - 72%  
             

Discount rate

      10%    

Total

  $ 17,500                    

 

 

   

Fair Value at

                   
   

December 31,

                   
   

2016

 

Valuation Technique

 

Unobservable Input

   

Assumption

 

Contingent Consideration Liability:

                         

AZEDRA commercialization

  $ 3,800  

Probability adjusted discounted

 

Probability of success

      54%    
         

cash flow model

 

Period of expected milestone achievement

   

 

2018    
             

Discount rate

      10%    

1404 commercialization

    4,700  

Probability adjusted discounted

 

Probability of success

      59%    
         

cash flow model

 

Period of expected milestone achievement

   

 

2019    
             

Discount rate

      10%    

1095 commercialization

    400  

Probability adjusted discounted

 

Probability of success

      16%    
         

cash flow model

 

Period of expected milestone achievement

   

 

2024    
             

Discount rate

      10%    

Net sales targets

    5,300  

Monte-Carlo simulation

 

Probability of success

    16% - 59%  
             

Discount rate

      10%    

Total

  $ 14,200                    

 

For those financial instruments with significant Level 3 inputs, the following tables summarize the activities for the periods indicated:

 

   

Liability - Contingent Consideration

 
   

Fair Value Measurements Using

 
   

Significant Unobservable Inputs

 
   

(Level 3)

 
   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Balance at beginning of period

  $ 16,800     $ 19,600     $ 14,200     $ 18,800  

Fair value change included in net (loss) income

    700       600       3,300       1,400  

Balance at end of period

  $ 17,500     $ 20,200     $ 17,500     $ 20,200  
                                 

Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period

  $ 700     $ 600     $ 3,300     $ 1,400  

 

Note 5. Accounts Receivable

 

Our accounts receivable represent amounts due to us from collaborators, royalties, and sales of research reagents, and consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Royalties

  $ 2,562     $ 2,407  

Collaborators

    10       2,000  

Other

    47       457  

Accounts receivable, net

  $ 2,619     $ 4,864  

 

 

Note 6. Goodwill, In-Process Research and Development, and Other Intangible Assets

 

The fair values of in-process research and development (“IPR&D”) and other identified intangible assets acquired in business combinations are capitalized. We utilize the “income method,” which applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected sales revenues and estimated costs or “replacement costs”, whichever is greater. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each IPR&D project and other identified intangible assets, independently. IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. Other identified intangible assets, which include the technology asset acquired as part of the EXINI business combination, are amortized over the relevant estimated useful life. The IPR&D assets are tested for impairment at least annually or when a triggering event occurs that could indicate a potential impairment and any impairment loss is recognized in our condensed consolidated statements of operations.

 

 

Goodwill represents excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized, but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We determine whether goodwill may be impaired by comparing the fair value of the reporting unit (we have determined that we have only one reporting unit for this purpose), calculated as the product of shares outstanding and the share price as of the end of a period, to its carrying value (for this purpose, our total stockholders’ equity). No goodwill impairment has been recognized as of September 30, 2017 or 2016.

 

The following tables summarize the activity related to our goodwill and intangible assets (in thousands):

 

                   

Other

 
                   

Intangible

 
   

Goodwill

   

IPR&D

   

Assets

 

Balance at January 1, 2017

  $ 13,074     $ 28,700     $ 1,881  

Amortization expense

    -       -       (159)  

Balance at September 30, 2017

  $ 13,074     $ 28,700     $ 1,722  

 

                   

Other

 
                   

Intangible

 
   

Goodwill

   

IPR&D

   

Assets

 

Balance at January 1, 2016

  $ 13,074     $ 28,700     $ 2,093  

Amortization expense

    -       -       (159)  

Balance at September 30, 2016

  $ 13,074     $ 28,700     $ 1,934  

 

Note 7. Accrued Expenses

 

The carrying value of our accrued expenses approximates fair value as it represents amounts that will be satisfied within one year. Accrued expenses consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Accrued clinical trial costs

  $ 4,600     $ 4,885  

Accrued payroll and related costs

    1,792       1,957  

Accrued consulting and service fee expenses

    1,314       1,026  

Accrued legal and professional fees

    788       1,123  

Accrued contract manufacturing costs

    665       2,048  

Loss contingency for litigation

    -       4,000  

Other

    945       751  

Accrued expenses

  $ 10,104     $ 15,790  

 

 

Note 8. Commitments and Contingencies

 

We are or may be from time to time involved in various other disputes, governmental and/or regulatory inspections, inquiries, investigations, and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows. 

 

 

In each of the matters described in this filing or in Note 8. Commitments and Contingencies to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016, plaintiffs seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process (which in complex proceedings of the sort faced by us often extend for several years). As a result, none of the matters described in this filing, except for the former employee litigation, have progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.

 

Former Employee Litigation

 

On January 4, 2017, we and a former employee entered into a settlement agreement and exchanged mutual releases under a federal action brought in 2010 by the former employee, where such former employee had complained that we had violated the anti-retaliation provisions of the federal Sarbanes-Oxley law by terminating him. As a settlement of all claims under this litigation, we paid an aggregate sum of $4.0 million to the former employee and his attorneys during the nine months ended September 30, 2017.

 

Abbreviated New Drug Application Litigations

 

On October 7, 2015, we, Valeant, and Wyeth LLC (Valeant’s predecessor as licensee of RELISTOR) received notification of a Paragraph IV certification for certain patents for RELISTOR® (methylnaltrexone bromide) subcutaneous injection, which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. The certification resulted from the filing by Mylan Pharmaceuticals, Inc. of an Abbreviated New Drug Application (“ANDA”) with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

On October 28, 2015, we, Valeant, and Wyeth LLC received a second notification of a Paragraph IV certification with respect to the same patents for RELISTOR subcutaneous injection from Actavis LLC as a result of Actavis LLC’s filing of an ANDA with the FDA, also challenging these patents and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

On October 24, 2016, we, Valeant, and Wyeth LLC received a notification of a Paragraph IV certification with respect to certain patents for RELISTOR Tablets. The certification accompanied the filing by Actavis LLC of an ANDA challenging such patents for RELISTOR Tablets and seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

 

On July 14, 2017, we, Valeant, and Wyeth LLC received a notification of a Paragraph IV certification with respect to certain patents for RELISTOR subcutaneous injection. The certification accompanied the filing by Par Sterile Products, LLC of an ANDA challenging such patents for RELISTOR subcutaneous injection.

 

In accordance with the Drug Price Competition and Patent Term Restoration Act (commonly referred to as the Hatch-Waxman Act), we and Valeant timely commenced litigation against each of the above-listed ANDA filers in order to obtain an automatic stay of FDA approval of the ANDA until the earlier of (i) 30 months from receipt of the notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed.

 

In each of the above-described proceedings we and Valeant continue to cooperate closely to vigorously defend and enforce RELISTOR intellectual property rights. Pursuant to the RELISTOR license agreement between us and Valeant, Valeant has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement.

 

In addition to the above-described ANDA notifications, in October 2015, we received notices of opposition to three European patents relating to methylnaltrexone bromide. The oppositions were filed separately by each of Actavis Group PTC ehf. and Fresenius Kabi Deutschland GmbH. We are actively defending the European patents against these opposition challenges.

 

 

9. Non-Recourse Long-Term Debt, Net

 

In November 2016, through a new wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), we entered into a loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”). We borrowed $50.0 million and can borrow an additional $50.0 million, subject to mutual agreement with HCRP, up to twelve months after the closing date. Under the terms of the Royalty-Backed Loan, the lenders have no recourse to us or to any of our assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under our agreement with Valeant. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of 9.5%.

 

Under the terms of the loan agreement, payments of interest and principal, if any, under the loan will be made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date. On each payment date prior to March 31, 2018, RELISTOR royalty payments received since the immediately preceding payment date will be applied solely to the payment of interest on the loan, with any royalties in excess of the interest amount retained by us. Beginning on March 31, 2018, 50% of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan will be used to repay the principal of the loan, with the balance retained by us. Starting on September 30, 2021, all of the RELISTOR royalties received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. The loan has a maturity date of June 30, 2025. Upon the occurrence of certain triggers in the loan agreement, or if HCRP so elects on or after January 1, 2018, all of the RELISTOR royalty payments received after the immediately-preceding payment date shall be applied to the payment of interest and repayment of principal until the principal of the loan is fully repaid. In the event of such an election by HCRP, we have the right to repay the loan without any prepayment penalty.

 

In connection with the Royalty-Backed Loan, we paid HCRP a lender fee of $0.5 million and incurred additional debt issuance costs totaling $0.9 million, which includes expenses that we paid on behalf of HCRP and expenses incurred directly by us. Debt issuance costs and the lender fee have been netted against the debt as of September 30, 2017, and are being amortized over the estimated term of the debt using the effective interest method. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs were based on estimates derived from third-party forecasts. Changes to the assumptions could impact the short- and long-term classification of the debt, as well as the period over which the issuance costs will be amortized.

 

The following tables summarize the components of the Royalty-Backed Loan in our condensed consolidated financial statements for the periods presented (in thousands):

 

   

September 30,

   

December 31,

 

Condensed Consolidated Balance Sheets

 

2017

   

2016

 

Outstanding principal balance

  $ 2,083     $ -  

Unamortized debt discount

    (244 )     -  

Current portion of debt, net

  $ 1,839     $ -  
                 

Outstanding principal balance, long-term portion

  $ 48,669     $ 50,765  

Unamortized debt discount, long-term portion

    (883 )     (1,312 )

Long-term debt, net

  $ 47,786     $ 49,453  

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

Condensed Consolidated Statements of Operations

 

2017

   

2016

   

2017

   

2016

 

Interest expense

  $ 1,205     $ -     $ 3,603     $ -  

Non-cash interest expense

    62       -       172       -  

Total interest expense included in interest (expense) income, net

  $ 1,267     $ -     $ 3,775     $ -  

 

As of September 30, 2017, we were in compliance with all material covenants under the Royalty-Backed Loan and there was no material adverse change in our business, operations, or financial conditions, as defined in the loan agreement.

 

 

Note 10. Stockholders Equity

 

Common Stock and Preferred Stock

 

We are authorized to issue 160.0 million shares of our common stock, par value $0.0013, and 20.0 million shares of preferred stock, par value $0.001. The Board of Directors (the “Board”) has the authority to issue common and preferred shares, in series, with rights and privileges as determined by the Board.

 

Shelf Registration

 

During the first quarter of 2017, we established a $250.0 million replacement shelf registration statement.

 

Accumulated Other Comprehensive Loss

 

The following table summarizes the components of AOCL at September 30, 2017 (in thousands):

 

   

Foreign

         
   

Currency

         
   

Translation

   

AOCL

 

Balance at January 1, 2017

  $ (85 )   $ (85 )

Foreign currency translation adjustment

    51       51  

Balance at September 30, 2017

  $ (34 )   $ (34 )

 

 

We did not have any reclassifications out of AOCL to losses during the nine months ended September 30, 2017 or 2016.

 

Note 11. Stock-Based Compensation

 

Equity Incentive Plans

 

We adopted the following stockholder-approved equity incentive plans:

 

●     The 1996 Amended Stock Incentive Plan (the “1996 Plan”) authorized the issuance of up to 5,000,000 shares of our common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 1996 Plan was terminated in 2006. Options granted before termination of the 1996 Plan will continue to remain outstanding until exercised, cancelled, or expired.

 

●     The 2005 Stock Incentive Plan (the “2005 Plan”), pursuant to which we are authorized to issue up to 11,450,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2005 Plan will terminate on March 25, 2024.

 

The stock option plans provide that options may be granted at an exercise price of 100% of fair market value of our common stock on the date of grant, may be exercised in full or in installments, at the discretion of the Board or its Compensation Committee, and must be exercised within ten years from date of grant. Stock options generally vest pro rata over three to five years. We recognize stock-based compensation expense on a straight-line basis over the requisite service (vesting) period based on fair values. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of stock-based compensation expense as of the grant date. We adjust the total amount of stock-based compensation expense recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

 

 

Stock Options

 

The following table summarizes stock options activity for the nine months ended September 30, 2017 (in thousands, except per share data or as otherwise noted):

 

                   

Weighted

 
           

Weighted

   

Average

 
   

Number

   

Average

   

Remaining

 
   

of Shares

   

Exercise Price

   

Contractual Life

 

Outstanding at January 1, 2017

    4,887     $ 7.57       5.81  

Granted

    1,134     $ 10.57          

Exercised

    (80 )   $ 5.89          

Cancelled

    (151 )   $ 8.94          

Expired

    (288 )   $ 22.48          

Outstanding at September 30, 2017

    5,502     $ 7.40       6.16  

Exercisable at September 30, 2017

    3,757     $ 6.94       4.91  

Vested and expected to vest at September 30, 2017

    5,166     $ 7.30       5.97  

 

 

The weighted-average fair value of options granted during the three and nine months ended September 30, 2017 was $4.04 and $7.11 per share, respectively and during the three and nine months ended September 30, 2016 was $3.68 and $3.13 per share, respectively.

 

The total intrinsic value (the excess of the market price over the exercise price) was approximately $6.8 million for stock options outstanding, $5.2 million for stock options exercisable, and $6.6 million for stock options vested and expected to vest as of September 30, 2017. The total intrinsic value for stock options exercised during the three and nine months ended September 30, 2017 was approximately $2 thousand and $233 thousand, respectively, and during the three and nine months ended September 30, 2016 was approximately $118 thousand and $119 thousand, respectively.

 

We do not expect to realize any tax benefits from our stock option activity or the recognition of stock-based compensation expense, because we currently have net operating losses and have a full valuation allowance against our deferred tax assets.

 

Stock-Based Compensation Expense

 

We account for stock-based awards issued to employees in accordance with the provisions of ASC 718 (Topic 718, Compensation – Stock Compensation). We recognize stock-based compensation expense on a straight-line basis over the service period of the award, which is generally three to five years. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC 718 and ASC 505-50 (Subtopic 50 “Equity-Based Payments to Non-Employees” of Topic 505, Equity). Options granted to consultants are periodically revalued as the options vest, and are recognized as an expense over the related period of service or the vesting period, whichever is longer. Under the provisions of ASC 718, members of the Board are considered employees for calculation of stock-based compensation expense.

 

We estimated the fair value of the stock options granted on the date of grant using a Black-Scholes valuation model that used the weighted-average assumptions noted in the following table. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. The expected life (estimated period of time that we expect employees, directors, and consultants to hold their stock options) was estimated based on historical rates for three group classifications, (i) employees, (ii) outside directors and officers, and (iii) consultants. Expected volatility was based on historical volatility of our stock price for a period equal to the stock option’s expected life and calculated on a daily basis. The expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Risk-free interest rate

    1.82 %     1.17 %     2.17 %     1.53 %

Expected life (in years)

    5.19       5.20       6.76       6.77  

Expected volatility

    74 %     77 %     72 %     74 %

Expected dividend yield

    --       --       --       --  

 

Stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016 was recorded in our condensed consolidated statement of operations as follows (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Research and development expenses

  $ 380     $ 186     $ 941     $ 635  

General and administrative expenses

    555       236       2,183       1,323  

Total stock-based compensation expense

  $ 935     $ 422     $ 3,124     $ 1,958  

 

 

At September 30, 2017, unrecognized stock-based compensation expense related to stock options was approximately $5.9 million and is expected to be recognized over a weighted-average period of approximately 2.37 years.

 

Note 12. Subsequent Event

 

On October 31, 2017, we submitted a New Drug Application (“NDA”) for AZEDRA to the FDA. We are developing AZEDRA as a treatment for patients with malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma, which are rare neuroendocrine tumors. AZEDRA has received Breakthrough Therapy, Orphan Drug, and Fast Track designations from the FDA. There are currently no approved therapeutics in the U.S. for the treatment of malignant, recurrent and/or unresectable pheochromocytoma or paraganglioma.

 

There can be no assurance that the NDA will be approved. See Part II, Item 1A. Risk Factors below for important information regarding risks that could result in delay or denial of the NDA.

 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in understanding the business of Progenics Pharmaceuticals, Inc. and its subsidiaries (the “Company”, “Progenics”, “we”, or “us”). MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2016. Our results of operations discussed in MD&A are presented in conformity with accounting principles generally accepted in the U.S. (“GAAP”). We operate under a single research and development business segment. Therefore, our results of operations are discussed on a consolidated basis.

 

Note Regarding Forward-Looking Statements

 

This document and other public statements we make may contain statements that do not relate strictly to historical fact, any of which may be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements contained in this communication that refer to our estimated or anticipated future results or other non-historical facts are forward-looking statements that reflect our current perception of existing trends and information as of the date of this communication. Forward looking statements generally will be accompanied by words such as anticipate, believe, plan, could, should, estimate, expect”, forecast, outlook, guidance, intend, may, might, will, possible, potential, predict, project, or other similar words, phrases or expressions. Such statements are predictions only, and are subject to risks and uncertainties that could cause actual events or results to differ materially. Forward-looking statements involve known and unknown risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. While it is impossible to identify or predict all such matters, these differences between forward-looking statements and our actual results, performance or achievement may result from, among other things, the inherent uncertainty of the timing and success of, and expense associated with, research, development, regulatory approval and commercialization of our products and product candidates, including the risks that clinical trials will not commence or proceed as planned; products which appear to be promising in early trials will not demonstrate efficacy or safety in larger-scale trials; the sales of RELISTOR® and other products by our partners and the revenue and income generated for us thereby may not meet expectations; competing products currently on the market or in development might reduce the commercial potential of our products; we, our collaborators or others might identify side effects after the product is on the market; or efficacy or safety concerns regarding marketed products, whether or not originating from subsequent testing or other activities by us, governmental regulators, other entities or organizations or otherwise, and whether or not scientifically justified, may lead to product recalls, withdrawals of marketing approval, reformulation of the product, additional pre-clinical testing or clinical trials, changes in labeling of the product, the need for additional marketing applications, declining sales, or other adverse events.

 

We are also subject to risks and uncertainties associated with the actions of our corporate, academic and other collaborators and government regulatory agencies, including risks from market forces and trends; potential product liability; intellectual property, litigation and other dispute resolution, environmental and other risks; the risk that we may not be able to obtain sufficient capital, recruit and retain employees, enter into favorable collaborations or transactions, or other relationships or that existing or future relationships or transactions may not proceed as planned; the risk that current and pending patent protection for our products may be invalid, unenforceable or challenged, or fail to provide adequate market exclusivity, or that our rights to in-licensed intellectual property may be terminated for our failure to satisfy performance milestones; the risk of difficulties in, and regulatory compliance relating to, manufacturing products; and the uncertainty of our future profitability.

 

Risks and uncertainties to which we are subject also include general economic conditions, including interest and currency exchange-rate fluctuations and the availability of capital; changes in generally accepted accounting principles; the impact of legislation and regulatory compliance; the highly regulated nature of our business, including government cost-containment initiatives and restrictions on third-party payments for our products; trade buying patterns; the competitive climate of our industry; and other factors set forth in this document and other reports filed with the U.S. Securities and Exchange Commission (SEC). In particular, we cannot assure you that RELISTOR will be commercially successful or be approved in the future in other formulations, indications or jurisdictions, that any of our other programs, including AZEDRA®, will result in a commercial product, or that we will be able to successfully develop and commercialize the products of EXINI Diagnostics AB (“EXINI).

 

 

We do not have a policy of updating or revising forward-looking statements and, except as expressly required by law, we disclaim any intent or obligation to update or revise any statements as a result of new information or future events or developments. It should not be assumed that our silence over time means that actual events are bearing out as expressed or implied in forward-looking statements.

 

Overview

 

Business

 

We develop innovative medicines and other technologies to target and treat cancer. Our pipeline includes: (1) therapeutic agents designed to precisely target cancer (AZEDRA and 1095), (2) PSMA-targeted imaging agents for prostate cancer (1404 and PyLTM), and (3) imaging analysis tools. Our first commercial product, RELISTOR (methylnaltrexone bromide) for opioid-induced constipation, is partnered with Salix Pharmaceuticals, Inc. (a wholly owned subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”)).

 

We have licensed RELISTOR to Valeant, and have partnered other internally-developed or acquired compounds and technologies with third parties. We continue to consider opportunities for strategic collaborations, out-licenses and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and may in the future also in-license or acquire additional oncology compounds and/or programs.

 

Pipeline

 

Our goal is to become a preeminent, patient-centric oncology company and we intend to make a difference in how patients with prostate cancer, pheochromocytoma, and paraganglioma are diagnosed and treated. Our pipeline includes the following products and product candidates:

 

Product / Candidate

 

Description

 

Status

Ultra-Orphan Theranostic

 

 

 

 

AZEDRA

 

Treatment of malignant and/or recurrent and/or unresectable pheochromocytoma and paraganglioma

 

Phase 2b registrational study achieved primary endpoint under a Special Protocol Assessment agreement with the U.S. Food and Drug Administration ("FDA"); New Drug Application ("NDA") submitted; an Expanded Access Program in progress

Prostate Cancer Theranostics

 

 

 

 

1404

 

Technetium-99m labeled PSMA targeted SPECT/CT imaging agent for prostate cancer

 

Phase 3 trial in progress

PyL

 

Fluorinated PSMA-targeted PET/CT imaging agent for prostate cancer

 

Phase 2/3 trial in progress

1095

 

Iodine-131 labeled PSMA-targeted small molecule therapeutic for treatment of metastatic prostate cancer

 

Phase 1 trial in progress

PSMA TTC (Targeted Thorium Conjugate) (antibody licensed to Bayer)

 

Thorium-227 labeled PSMA-targeted antibody therapeutic for treatment of metastatic prostate cancer

 

Preclinical development in progress

Prostate cancer bone scan indexing products

 

Software that quantifies the hotspots on bone scans and automatically calculates the bone scan index value

 

Automated BSI is currently sold in Europe and Japan; a web-based version is available without charge to researchers in the U.S.

Opioid-Induced Constipation ("OIC") Treatment

 

 

RELISTOR-Subcutaneous injection (licensed to Valeant)

 

Treatment of OIC in adults with chronic non-cancer pain and treatment of OIC in advanced-illness adult patients receiving palliative care when laxative therapy has not been sufficient

 

Sold in the U.S., European Union, and Canada

RELISTOR-Oral Tablets (licensed to Valeant)

 

Treatment of OIC in adults with chronic non-cancer pain

 

Approved by the FDA on July 19, 2016; U.S. commercialization commenced in third quarter of 2016

 

We continue to consider opportunities for strategic collaborations, out-licenses, and other arrangements with biopharmaceutical companies involving proprietary research, development, clinical, and commercialization programs, and may in the future also in-license or acquire additional oncology compounds and/or programs.

 

 

Valeant Agreement

 

Under our agreement with Valeant, we received a development milestone of $40.0 million upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, and a development milestone of $50.0 million for the U.S. marketing approval of an oral formulation of RELISTOR in 2016. We are also eligible to receive up to $200.0 million of commercialization milestone payments upon first achievement of specified U.S. sales targets in any single calendar year. The following table summarizes the commercialization milestones (in thousands):

 

Calendar Year Net Sales Level

 

Payment

 

In excess of $100 million

  $ 10,000  

In excess of $150 million

    15,000  

In excess of $200 million

    20,000  

In excess of $300 million

    30,000  

In excess of $750 million

    50,000  

In excess of $1 billion

    75,000  
    $ 200,000  

 

 

Each commercialization milestone payment is payable one time only, regardless of the number of times the condition is satisfied, and all six payments could be made within the same calendar year. We are also eligible to receive royalties from Valeant and its affiliates based on the following royalty scale: 15% on worldwide net sales up to $100 million, 17% on the next $400 million in worldwide net sales, and 19% on worldwide net sales over $500 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Valeant receives from sublicensees outside the U.S.

 

Valeant has also entered into license and distribution agreements to expand its sales channels outside of the U.S. for RELISTOR. 

 

Bayer Agreement

 

Under our April 2016 agreement with a subsidiary of Bayer AG (“Bayer”) granting Bayer exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, we received an upfront payment of $4.0 million and milestone payments totaling $3.0 million and could receive up to an additional $46.0 million in potential clinical and regulatory development milestones. We are also entitled to single digit royalties on net sales, and potential net sales milestone payments up to an aggregate total of $130.0 million as well as royalty payments.

 

Subsequent Event

 

On October 31, 2017, we submitted an NDA for AZEDRA to the FDA. We are developing AZEDRA as a treatment for patients with malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma, which are rare neuroendocrine tumors. AZEDRA has received Breakthrough Therapy, Orphan Drug, and Fast Track designations from the FDA. There are currently no approved therapeutics in the U.S. for the treatment of malignant, recurrent and/or unresectable pheochromocytoma or paraganglioma.

 

There can be no assurance that the NDA will be approved. See Part II, Item 1A. Risk Factors below for important information regarding risks that could result in delay or denial of the NDA.

 

 

Results of Operations

 

The following table is an overview of our results of operations (in thousands, except percentages):

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         
   

2017

   

2016

   

Change

   

2017

   

2016

   

Change

 

Total revenue

  $ 2,697     $ 53,850       (95% )   $ 7,809     $ 64,777       (88% )

Operating expenses

  $ 17,002     $ 17,647       4 %   $ 52,927     $ 47,001       (13% )

Operating (loss) income

  $ (14,305 )   $ 36,203       (140% )   $ (45,118 )   $ 17,776       (354% )

Net (loss) income

  $ (15,352 )   $ 36,282       (142% )   $ (48,348 )   $ 17,952       (369% )

Net (loss) income attributable to Progenics

  $ (15,352 )   $ 36,303       (142% )   $ (48,348 )   $ 18,010       (368% )

 

Revenue

 

Our sources of revenue include license and other agreements with Valeant and other collaborators and, to a small extent, sale of research reagents. The following table is a summary of our worldwide revenue (in thousands, except percentages):

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

Source

 

2017

   

2016

   

Change

   

2017

   

2016

   

Change

 

Royalty income

  $ 2,562     $ 3,319       (23% )   $ 7,282     $ 7,888       (8% )

License revenue

    129       50,523       (100% )     491       56,839       (99% )

Other revenue

    6       8       (25% )     36       50       (28% )

Total revenue

  $ 2,697     $ 53,850       (95% )   $ 7,809     $ 64,777       (88% )

 

Royalty income. We recognized royalty income based on the below net sales of RELISTOR as reported to us by Valeant (in thousands).

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         
   

2017

   

2016

   

Change

   

2017

   

2016

   

Change

 

U.S.

  $ 16,900     $ 21,500       (21% )   $ 46,700     $ 51,600       (9% )

Outside U.S.

    200       600       (67% )     1,800       3,000       (40% )

Worldwide net sales of RELISTOR

  $ 17,100     $ 22,100       (23% )   $ 48,500     $ 54,600       (11% )

 

Royalty income decreased by $0.8 million, or 23%, during the three months ended September 30, 2017, compared to the same period in 2016. Royalty income decreased by $0.6 million, or 8%, during the nine months ended September 30, 2017, compared to the same period in 2016. The prior year periods reflected a non-recurring favorable sales return adjustment included in Valeant’s reported net sales of RELISTOR.

 

License revenue. We recognized milestone revenue of $50.0 million under the Valeant license agreement during the three and nine months ended September 30, 2016 and upfront and milestone revenue of $5.0 million under the Bayer license agreement during the nine months ended September 30, 2016. We did not recognize any upfront or milestone revenue under our existing license agreements during the current year periods.

 

 

Operating Expenses

 

The following table is a summary of our operating expenses (in thousands, except percentages):

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

Operating Expenses

 

2017

   

2016

   

Change

   

2017

   

2016

   

Change

 

Research and development

  $ 10,344     $ 9,827       (5% )   $ 31,641     $ 26,964       (17% )

General and administrative

    5,958       7,220       17 %     17,986       18,637       3 %

Change in contingent consideration liability

    700       600       (17% )     3,300       1,400       (136% )

Total operating expenses

  $ 17,002     $ 17,647       4 %   $ 52,927     $ 47,001       (13% )

 

Research and Development (R&D)

 

R&D expenses increased by $0.5 million, or 5%, during the three months ended September 30, 2017, compared to the same period in 2016. The increase was primarily attributable to higher clinical trial costs for PyL, partially offset by lower manufacturing scale-up costs for 1095.

 

R&D expenses increased by $4.7 million, or 17%, during the nine months ended September 30, 2017, compared to the same period in 2016. The increase was primarily attributable to higher clinical trial costs for PyL.

 

General and Administrative (G&A)

 

G&A expenses decreased by $1.3 million, or 17%, during the three months ended September 30, 2017, compared to the same period in 2016. The prior year period included an accrual for litigation with a former employee. Partially offsetting this decrease were higher costs associated with building our commercial capabilities in preparation of the potential AZEDRA launch.

 

G&A expenses decreased by $0.7 million, or 3%, during the nine months ended September 30, 2017, compared to the same period in 2016. The decrease was primarily attributable to lower depreciation expense resulting from prior year acceleration of depreciation due to reduction of the remaining useful lived of our leasehold improvement at our former Tarrytown, NY location. In addition, the prior year period included an accrual for litigation with a former employee. Partially offsetting these decreases were higher costs associated with building our commercial capabilities in preparation of the potential AZEDRA launch and higher stock-based compensation expense.

 

Change in Contingent Consideration Liability

 

We assessed the estimated probability of success of AZEDRA to be higher at March 31, 2017, due to the achievement of the primary endpoint in our registrational Phase 2b trial of AZEDRA under a Special Protocol Assessment agreement with the FDA. Since then, our quarterly assessment did not result in any additional changes to the estimated probabilities. The change in contingent consideration liability increased by $0.1 million, or 17%, during the three months ended September 30, 2017, compared to the same period in 2016. The increase was primarily attributable to a decrease in the discount period used to calculate the present value of the contingent consideration liability.

 

The change in contingent consideration liability increased by $1.9 million, or 136%, during the nine months ended September 30, 2017, compared to the same period in 2016. The increase was primarily attributable to the higher estimated probability of success of AZEDRA used to calculate the potential milestone payments to former Molecular Insight Pharmaceuticals, Inc. stockholders.

 

Other (Expense) Income

 

The following table is a summary of our other (expense) income (in thousands, except percentages):

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         
   

2017

   

2016

   

Change

   

2017

   

2016

   

Change

 

Interest (expense) income, net

  $ (1,047 )   $ 79       (1425% )   $ (3,230 )   $ 176       (1935% )

Other (expense) income, net

  $ (1,047 )   $ 79       (1425% )   $ (3,230 )   $ 176       (1935% )

 

 

Other expense, net increased by $1.1 million, or 1,425%, and $3.4 million, or 1,935%, during the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The increase was primarily attributable to interest expense for the RELISTOR royalty-backed loan, which was executed in November 2016.

 

Liquidity and Capital Resources

 

The following table is a summary of selected financial data (in thousands):

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Cash and cash equivalents

  $ 98,279     $ 138,909  

Accounts receivable, net

  $ 2,619     $ 4,864  

Total assets

  $ 152,882     $ 198,986  

Working capital

  $ 89,501     $ 131,744  

 

We had, prior to our RELISTOR royalty-backed loan, funded operations principally through payments received from private placements of equity securities, public offerings of our common stock, up-front payments, development milestones, and royalties from license agreements, and proceeds from the exercise of stock options.

 

At September 30, 2017, we held $98.3 million in cash and cash equivalents, a decrease of $40.6 million from $138.9 million at December 31, 2016. We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with our existing operations over the next twelve (12) months.

 

If we do not realize sufficient royalties or milestone payments from Valeant, Bayer, or other licensees, or raise additional capital, we will have to reduce, delay, or eliminate spending on certain programs, and/or take other economic measures.

 

During the first quarter of 2017, we filed a $250.0 million replacement shelf registration statement, which was declared effective as of January 19, 2017. In addition, we also entered into a controlled equity offering sales agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), as sales agent, pursuant to which we may offer and sell through Cantor, from time to time, shares of our common stock up to an aggregate offering price of $75.0 million. This Sales Agreement may be terminated by Cantor or us at any time upon ten (10) days’ notice, or by Cantor at any time in certain circumstances, including the occurrence of a material adverse change in our business or financial condition.

 

Cash Flows

 

The following table is a summary of our cash flow activities (in thousands):

 

   

Nine Months Ended

 
   

September 30,

 
   

2017

   

2016

 

Net cash (used in) provided by operating activities

  $ (40,988 )   $ 27,257  

Net cash used in investing activities

  $ (226 )   $ (2,920 )

Net cash provided by financing activities

  $ 491     $ 510  

 

Operating Activities

 

 Net cash used in operating activities during the nine months ended September 30, 2017 was primarily attributable to operating expenses, net of non-cash items.

 

Investing Activities

 

Net cash used in investing activities during the nine months ended September 30, 2017 was primarily related to capital expenditures, partially offset by proceeds from the sale of fixed assets.

 

 

Financing Activities

 

Net cash provided by financing activities during the nine months ended September 30, 2017 was primarily related to proceeds from the exercise of stock options.

 

Off-Balance Sheet Arrangements and Guarantees

 

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

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. Our significant accounting policies are disclosed in Note 2. Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. The selection and application of these accounting principles and methods requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. We evaluate these estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities that are not otherwise readily apparent. While we believe that the estimates and assumptions we use in preparing the financial statements are appropriate, they are subject to a number of factors and uncertainties regarding their ultimate outcome and, therefore, actual results could differ from these estimates.

 

There have been no changes to our critical accounting policies and estimates as of and for the nine months ended September 30, 2017 as noted in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Recent Accounting Developments

 

Refer to our discussion of recently adopted accounting pronouncements and other recent accounting pronouncements in Note 2. New Accounting Pronouncements to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Our primary investment objective is to preserve principal. Our money market funds have interest rates that were variable and totaled $94.6 million at September 30, 2017. As a result, we do not believe that these investment balances have a material exposure to interest-rate risk.

 

The majority of our business is conducted in U.S. dollars. However, we do conduct certain transactions in other currencies, including Euros, British Pounds, Swiss Francs, and Swedish Krona. Historically, fluctuations in foreign currency exchange rates have not materially affected our condensed consolidated results of operations, and during the three and nine months ended September 30, 2017 and 2016, our consolidated results of operations were not materially affected by fluctuations in foreign currency exchange rates.

 

Item 4. Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports, is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have a Disclosure Committee consisting of certain members of our senior management which monitors and implements our policy of disclosing material information concerning the Company in accordance with applicable law.

 

 

As required by SEC Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of senior management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the foregoing, our CEO and CFO concluded that our current disclosure controls and procedures, as designed and implemented, were effective at the reasonable assurance level.

 

There have been no changes in our internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f), during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There have been no other material changes from the information discussed in Part I, Item 3. Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2016. We are or may be from time to time involved in various other disputes, governmental, and/or regulatory inspections, inquiries, investigations, and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows. Refer to our discussion in Note 8. Commitments and Contingencies to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

Item 1A. Risk Factors

 

There have been no material changes from the information discussed in Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, except as provided below. You should carefully consider the risks and uncertainties we discussed in our Form 10-Q and below before deciding to invest in, or retain, shares of our common stock. These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial, or that we have not predicted, may also harm our business operations or adversely affect us. If any of these risks or uncertainties actually occurs, our business, financial condition, operating results, or liquidity could be materially harmed.

 

Approval of our NDA filing for AZEDRA may be delayed, conditioned or denied by the FDA, including for failure of the AZEDRA manufacturer to pass a pre-approval inspection by the FDA.

 

Approval of a product candidate as safe and effective for use in humans is never certain. There remains significant uncertainty that AZEDRA will eventually receive regulatory approval. Additional testing results or adverse market conditions may cause us to withdraw the NDA. In addition, data obtained from clinical trials are susceptible to varying interpretations, and the FDA may not agree with our interpretation of our AZEDRA clinical trial results. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. Additionally, the commercial drug product manufacturing facility for AZEDRA must complete a pre-approval inspection prior to FDA approval. In August 2017, we were notified by our third-party vendor that the facility required more time to prepare for the pre-approval inspection. There can be no assurance that the manufacturing facility will pass the pre-approval inspection. Failure to pass the inspection could significantly delay or otherwise adversely affect FDA approval. Any approval of our NDA filing for AZEDRA will also be subject to further requirements, including additional site inspections, that are part of the FDA’s approval process.

 

Further, the FDA may not meet, or may extend, the Prescription Drug User Fee Act date with respect to our AZEDRA NDA, which may delay the start of any AZEDRA commercialization effort. Further, if we are unable to address any recommendations or requirements of the FDA under any clinical hold it may impose, we could be delayed or prevented from seeking commercialization of AZEDRA.

 

 

Item 6. Exhibits

(a)  Exhibits

 

Exhibit Number

Description

 

 

31.1

Certification of Mark R. Baker, Chief Executive Officer of the Registrant, pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Patrick Fabbio, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) of the Registrant, pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101

Interactive Data Files:

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Document

 

 

 

*     The exhibit footnoted as previously filed has been filed as an exhibit to the document of the Registrant or other registrant referenced in the footnote below, and are incorporated by reference herein.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

PROGENICS PHARMACEUTICALS, INC.

Date: November 2, 2017

By:

/s/ Patrick Fabbio

 

 

Patrick Fabbio

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

31