Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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, 2019
	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, 47^th Floor
New York, NY 10007
(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: (646) 975-2500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0013	PGNX	The Nasdaq Global Select Market

 

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 every Interactive Data File required to be submitted 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 such files). Yes ☒No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐		Smaller reporting company ☒
		Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition 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 November 4, 2019, a total of 86,421,634 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 (unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements 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	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
	Signatures	41

 

 

 

		September 30,				December 31,
		2019				2018
		(unaudited)				(audited)
ASSETS
Current assets:
Cash and cash equivalents		$	64,493			$	137,686
Accounts receivable, net			6,174				3,803
Other current assets			5,136				2,640
Total current assets			75,803				144,129
Property and equipment, net			9,254				3,944
Intangible assets, net			7,099				6,666
Goodwill			17,847				13,074
Operating right-of-use lease assets			13,681				-
Other assets			6,368				1,684
Total assets		$	130,052			$	169,497
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	674			$	444
Accrued expenses			12,461				10,533
Contingent consideration liability			-				7,050
Current portion of debt, net			6,437				5,419
Operating lease liabilities			572				-
Total current liabilities			20,144				23,446
Long-term debt, net			34,489				39,180
Operating lease liabilities			15,154				-
Contingent consideration liability			4,300				3,950
Deferred tax liability			28				28
Other liabilities			-				1,818
Total liabilities			74,115				68,422
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 - 86,621 shares in 2019 and 84,742 shares in 2018			112				110
Additional paid-in capital			725,356				713,019
Treasury stock at cost, 200 shares of common stock			(2,741	)			(2,741	)
Subscription receivable			-				-
Accumulated other comprehensive loss			(305	)			(105	)
Accumulated deficit			(666,485	)			(609,208	)
Total stockholders’ equity			55,937				101,075
Total liabilities and stockholders’ equity		$	130,052			$	169,497

 

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2019				2018				2019				2018
Revenues:
Product sales		$	570			$	-			$	840			$	-
Royalty income			4,912				5,169				12,666				11,757
License and other revenue			131				148				6,354				627
Total revenue			5,613				5,317				19,860				12,384
Operating expenses:
Cost of goods sold			1,317				-				1,810				-
Research and development			11,439				8,090				36,911				25,547
Selling, general and administrative			11,473				7,075				35,267				21,341
Intangible impairment charge			-				23,200				-				23,200
Change in contingent consideration liability			(500	)			(8,000	)			1,316				(5,900	)
Total operating expenses			23,729				30,365				75,304				64,188
Operating loss			(18,116	)			(25,048	)			(55,444	)			(51,804	)
Other (expense) income:
Interest (expense) income and other income, net			(726	)			(762	)			(1,833	)			(2,698	)
Total other (expense) income			(726	)			(762	)			(1,833	)			(2,698	)
Loss before income tax benefit			(18,842	)			(25,810	)			(57,277	)			(54,502	)
Income tax benefit			-				1,453				-				1,549
Net loss		$	(18,842	)		$	(24,357	)		$	(57,277	)		$	(52,953	)
Net loss per share - basic and diluted		$	(0.22	)		$	(0.30	)		$	(0.67	)		$	(0.70	)
Weighted-average shares - basic and diluted			86,421				80,325				85,328				75,648

 

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2019				2018				2019				2018
Net loss		$	(18,842	)		$	(24,357	)		$	(57,277	)		$	(52,953	)
Other comprehensive loss:
Foreign currency translation adjustments			(211	)			(4	)			(200	)			(60	)
Comprehensive loss		$	(19,053	)		$	(24,361	)		$	(57,477	)		$	(53,013	)

 

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										Common Stock																Accumulated
		Common Stock								Subscribed								Additional								Other								Treasury Stock								Total
		Number								Number								Paid-in				Accumulated				Comprehensive				Subscription				Number								Stockholders’
		of Shares				Par Value				of Shares				Par Value				Capital				Deficit				Loss				Receivable				of Shares				Cost				Equity
Balance at December 31, 2018			84,742			$	110				-			$	-			$	713,019			$	(609,208	)		$	(105	)		$	-				(200	)		$	(2,741	)		$	101,075
Net loss			-				-				-				-				-				(18,735	)			-				-				-				-				(18,735	)
Foreign currency translation adjustments			-				-				-				-				-				-				(42	)			-				-				-				(42	)
Stock-based compensation expense			-				-				-				-				1,077				-				-				-				-				-				1,077
Balance at March 31, 2019			84,742			$	110				-			$	-			$	714,096			$	(627,943	)		$	(147	)		$	-				(200	)		$	(2,741	)		$	83,375
Net loss			-				-				-				-				-				(19,700	)			-				-				-				-				(19,700	)
Foreign currency translation adjustments			-				-				-				-				-				-				53				-				-				-				53
Stock-based compensation expense			-				-				-				-				994				-				-				-				-				-				994
Issuance of common stock to former shareholders of MIP, net of payments to advisors			1,632				2				-				-				7,737				-				-				-				-				-				7,739
Exercise of stock options			50				-				-				-				267				-				-				-				-				-				267
Subscription receivable in connection with exercise of stock options			-				-				175				-				933				-				-				(933	)			-				-				-
Balance at June 30, 2019			86,424			$	112				175			$	-			$	724,027			$	(647,643	)		$	(94	)		$	(933	)			(200	)		$	(2,741	)		$	72,728
Net loss			-				-				-				-				-				(18,842	)			-				-				-				-				(18,842	)
Foreign currency translation adjustments			-				-				-				-				-				-				(211	)			-				-				-				(211	)
Stock-based compensation expense			-				-				-				-				1,216				-				-				-				-				-				1,216
Exercise of stock options			22				-				-				-				113				-				-				-				-				-				113
Subscription receivable in connection with exercise of stock options			175				-				(175	)			-				-				-				-				933				-				-				933
Balance at September 30, 2019			86,621			$	112				-			$	-			$	725,356			$	(666,485	)		$	(305	)		$	-				(200	)		$	(2,741	)		$	55,937

										Common Stock																Accumulated
		Common Stock								Subscribed								Additional								Other								Treasury Stock								Total
		Number								Number								Paid-in				Accumulated				Comprehensive				Subscription				Number								Stockholders’
		of Shares				Par Value				of Shares				Par Value				Capital				Deficit				Loss				Receivable				of Shares				Cost				Equity
Balance at December 31, 2017			71,325			$	93				320			$	-			$	609,829			$	(541,586	)		$	(33	)		$	(2,109	)			(200	)		$	(2,741	)		$	63,453
Net loss			-				-				-				-				-				(13,424	)			-				-				-				-				(13,424	)
Foreign currency translation adjustments			-				-				-				-				-				-				(18	)			-				-				-				(18	)
Stock-based compensation expense			-				-				-				-				1,048				-				-				-				-				-				1,048
Cumulative effect of ASU 2014-09 adoption			-				-				-				-				-				35				-				-				-				-				35
Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs			1,537				2				(320	)			-				7,414				-				-				2,109				-				-				9,525
Subscription of common stock in connection with at-the-market offering, net of commissions			-				-				103				-				750				-				-				(750	)			-				-				-
Balance at March 31, 2018			72,862			$	95				103			$	-			$	619,041			$	(554,975	)		$	(51	)		$	(750	)			(200	)		$	(2,741	)		$	60,619
Net loss			-				-				-				-				-				(15,172	)			-				-				-				-				(15,172	)
Foreign currency translation adjustments			-				-				-				-				-				-				(38	)			-				-				-				(38	)
Stock-based compensation expense			-				-				-				-				2,130				-				-				-				-				-				2,130
Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs			2,097				2				-				-				15,288				-				-				-				-				-				15,290
Subscription of common stock in connection with at-the-market offering, net of commissions			-				-				(103	)			-				(750	)			-				-				750				-				-				-
Balance at June 30, 2018			74,959			$	97				-			$	-			$	635,709			$	(570,147	)		$	(89	)		$	-				(200	)		$	(2,741	)		$	62,829
Net loss			-				-				-				-				-				(24,357	)			-				-				-				-				(24,357	)
Foreign currency translation adjustments			-				-				-				-				-				-				(4	)			-				-				-				(4	)
Stock-based compensation expense			-				-				-				-				1,123				-				-				-				-				-				1,123
Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs			596				1				-				-				4,837				-				-				-				-				-				4,838
Sale of common stock in public offering, net of underwriting discounts and commissions ($4,500) and offering expenses ($513)			9,091				12				-				-				69,975				-				-				-				-				-				69,987
Exercise of stock options			96				-				-				-				467				-				-								-				-				467
Balance at September 30, 2018			84,742			$	110				-			$	-			$	712,111			$	(594,504	)		$	(93	)		$	-				(200	)		$	(2,741	)		$	114,883

 

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		Nine Months Ended
		September 30,
		2019				2018
Cash flows from operating activities:
Net loss		$	(57,277	)		$	(52,953	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense			3,287				4,301
Depreciation and amortization			1,767				1,014
Non-cash interest expense			206				229
Other			11				(1,549	)
Intangible impairment charge			-				23,200
Change in fair value of contingent consideration liability			1,316				(5,900	)
Changes in assets and liabilities:
Accounts receivable			(2,374	)			(1,813	)
Other current assets			(2,350	)			(1	)
Other assets			(2,382	)			-
Accounts payable			240				(2,714	)
Accrued expenses			1,994				(1,874	)
Other current liabilities			60				-
Other liabilities			(369	)			218
Net cash used in operating activities			(55,871	)			(37,842	)
Cash flows from investing activities:
Acquisition of AZEDRA manufacturing assets			(8,000	)			-
Purchases of property and equipment			(4,465	)			(595	)
Portion of MIP milestones paid to former advisor			(277	)			-
Net cash used in investing activities			(12,742	)			(595	)
Cash flows from financing activities:
Net proceeds from public offering of common stock			-				69,987
Net proceeds from issuance of common stock in connection with at-the-market offering			-				29,653
Repayment of debt			(3,880	)			(3,368	)
Proceeds from exercise of stock options			1,313				467
Net cash (used in) provided by financing activities			(2,567	)			96,739
Effect of currency rate changes on cash, cash equivalents and restricted cash			(220	)			(86	)
Net decrease in cash, cash equivalents, and restricted cash			(71,400	)			58,216
Cash, cash equivalents, and restricted cash at beginning of period			139,220				92,164
Cash, cash equivalents, and restricted cash at end of period		$	67,820			$	150,380
Supplemental disclosure of cash flow information
Cash paid for interest		$	3,146			$	3,535

Cash, cash equivalents and restricted cash information
Cash and cash equivalents at beginning of period			137,686				90,642
Restricted cash included in long-term assets at the beginning of period			1,534				1,522
Cash, cash equivalents and restricted cash at beginning of period		$	139,220			$	92,164
Cash and cash equivalents at end of period			64,493				148,851
Restricted cash included in long-term assets at the end of period			3,327				1,529
Cash, cash equivalents, and restricted cash at end of period		$	67,820			$	150,380

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Note 1. Summary of Significant Accounting Policies

 

Business

 

Progenics Pharmaceuticals, Inc. (and its subsidiaries collectively the “Company,” “Progenics”, “we”, or “us”) is an oncology company focused on the development and commercialization of innovative targeted medicines and artificial intelligence to find, fight and follow cancer. Our pipeline includes therapeutic agents designed to precisely target cancer (AZEDRA, 1095 and PSMA TTC), as well as prostate-specific membrane antigen (“PSMA”) targeted imaging agents for prostate cancer (PyL and 1404).

 

Recent and Continued Progress:

 

●

On October 2, 2019, we announced the signing of a definitive agreement in which Lantheus Holdings, Inc. (“Lantheus”) will acquire Progenics in an all-stock transaction, offering a significant upside opportunity to the combined shareholders from a diversified, high growth portfolio with the potential for strong, growing profits. The combination of Lantheus and Progenics forms a leader in precision diagnostics and radiopharmaceutical therapeutics. The combined company is expected to have significant product and cost synergies that will diversify and sustain growing revenues and will drive incremental profitability and cash flow. The combined company will be led by Lantheus Chief Executive Officer, Mary Anne Heino. Ms. Heino will be supported by Chief Financial Officer, Robert J. Marshall Jr., and Chief Operations Officer, John Bolla. Following the closing, Bradley Campbell, currently a member of Progenics’ Board of Directors, will be added as a member of the Board of Directors of Lantheus. The transaction is expected to close in the first quarter of 2020, subject to approval by Lantheus and Progenics stockholders, regulatory approvals, and certain other customary closing conditions. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A, “Risk Factors,” and Note 13 of the Notes to Consolidated Financial Statements included in this report for additional information regarding the proposed transaction.

●

AZEDRA is the first and only approved therapy in the U.S. for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy. Third quarter sales of AZEDRA totaled $0.6 million (first therapeutic doses for three new patients and a second therapeutic dose for one patient who previously received a first dose). The AZEDRA Managed Access program for appropriate commercial patients in need of the therapy outside the U.S. was initiated, which will provide access to AZEDRA.

●

Progenics recently received comments and is currently in discussions with the Food and Drug Administration (“FDA”) on its proposed life cycle management study to evaluate AZEDRA in patients with other neuroendocrine tumors (“NETs”). The proposed study is on clinical hold until we reach agreement with the FDA. Assuming we can reach agreement with the FDA on an amended study, or possibly studies design, we intend to commence them next year.

●

Patient enrollment for the Phase 3 CONDOR trial evaluating the diagnostic performance and clinical impact of PyL (18F-DCFPyL) was completed. The Phase 3 CONDOR trial is a multi-center, open label trial that dosed 208 patients with biochemical recurrence of prostate cancer at 14 sites in the U.S. and Canada. Top-line data is expected by year end.

●

Patient enrollment is ongoing in the Phase 2 trial of 1095 in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC). Progenics’1095 is a small molecule radiotherapeutic designed to selectively bind to the extracellular domain of PSMA, a protein that is highly expressed on prostate cancer cells. Currently patients are being dosed at Canadian sites using drug produced by our contract manufacturing organization, CPDC. CPDC has not been allowed to ship drug to U.S. sites under an import alert. Following lifting of the import ban by FDA, Progenics will submit a request to utilize the CPDC drug at U.S. sites. We expect that review of our request will be completed by the end of 2019 and initiation of dosing at U.S. clinical sites is expected to begin in the first quarter of 2020.

 

 

Strategic partnerships:

 

●

RELISTOR® (methylnaltrexone bromide) is licensed to Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch Health Companies Inc. (“Bausch”, which is the predecessor of Valeant Pharmaceuticals International, Inc.). RELISTOR subcutaneous injection and RELISTOR Tablets are approved by the FDA for the treatment of opioid-induced constipation in adults with chronic non-cancer pain.

●

Bayer AG (“Bayer”) has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, in combination with Bayer’s alpha-emitting radionuclides. Bayer is developing PSMA TTC, a thorium-227 labeled PSMA-targeted antibody therapeutic. Bayer initiated a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer. In May 2019, Bayer dosed the first patient in the Phase 1 trial which triggered a $2.0 million milestone payment, recorded as part of the license and other revenue.

●

Curium has exclusive rights to develop, manufacture and commercialize PyL (18F-DCFPyL) in Europe. Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of PyL in Europe, and Progenics is entitled to royalties on net sales of PyL. Curium is in discussions with European Medicines Agency (“EMA”) regarding the development path in Europe.

●

ROTOP has exclusive rights to develop, manufacture and commercialize 1404 in Europe. Under the terms of the collaboration, ROTOP is responsible for the development, regulatory approvals and commercialization of 1404 in Europe. Under this agreement, Progenics is entitled to double-digit, tiered royalties on future net sales of 1404 in Europe. ROTOP is in discussions with EMA regarding the development path in Europe.

●

FUJIFILM Toyama Chemical Co, Ltd. (“FUJIFILM”) had rights to the Company’s aBSI product in Japan for use under the name BONENAVI under a prior agreement. Under the terms of a recently signed transfer agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from us for their use of aBSI in Japan. In exchange, Progenics received a $4.0 million upfront payment and is entitled to service fees for the next three years.

●

CytoDyn Inc. (“CytoDyn”) acquired leronlimab (PRO 140), which acquisition included a milestone and royalty payment obligations to us. Leronlimab is a fully humanized monoclonal antibody which is a cellular targeting CCR5 entry antagonist and is currently in development for the treatment of HIV. CytoDyn announced in March 2019 that it filed its first of three sections of its Biologics License Application (“BLA”) to the FDA for leronlimab for the treatment of HIV under the Rolling Review process.

 

Our current principal sources of revenue are AZEDRA sales, royalties, and development and commercial milestones from strategic partnerships. Royalty and further milestone payments from Bausch or Bayer depend on success in development and commercialization of RELISTOR and our PSMA-TTC, respectively, which is dependent on many factors, such as Bausch or Bayer’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 the licensed products.

 

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, commercializing AZEDRA and other related business activities. Certain of our intellectual property rights are held by wholly-owned subsidiaries. Our U.S. operations are presently conducted at our headquarters in New York and our manufacturing facility in Somerset, New Jersey. 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 operating segment, which includes development, manufacturing and commercialization of pharmaceutical products and other technologies to target, diagnose and treat cancer. Our operating segment is regularly evaluated for financial performance by our chief operating decision maker, who is our Chief Executive Officer.

 

Liquidity

 

The Company is not profitable and there is no assurance that we will ever achieve and sustain profitability on a continuing basis. In addition, development activities, clinical testing, and commercialization of the Company’s product candidates will require additional financing. The Company’s accumulated deficit at September 30, 2019 totaled $666.5 million, and management expects to incur substantial losses in future periods. The success of the Company is subject to certain risks and uncertainties, including among others, uncertainty of product development and commercialization; uncertainty of capital availability; uncertainty in the Company’s ability to enter into agreements with collaborative partners; dependence on third parties; and dependence on key personnel.

 

At September 30, 2019, we had $64.5 million of cash and cash equivalents, a decrease of $73.2 million from $137.7 million at December 31, 2018. On October 2, 2019, we announced a definitive agreement for Lantheus to acquire Progenics in an all-stock transaction. The combination of Lantheus and Progenics forms an innovative company with a diversified diagnostic and therapeutic portfolio. Consistent with regular practice for a growth-stage pharmaceutical or biotechnology company, and as we have successfully done in the past, we fully anticipate obtaining additional financing in order to meet our cash requirements if the Lantheus agreement is not ultimately consummated. However, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our operating needs beyond one year from the date this quarterly report is issued. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. If we are unable to obtain external financing, there is substantial doubt about our ability to continue as a going concern within one year after the date this Quarterly Report on Form 10-Q is filed with the SEC. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

 

Basis of Presentation

 

Our unaudited 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 unaudited 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, 2018. 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.

 

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.

 

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.

 

Revenue Recognition

 

We recognize revenue when our customers obtain control of the promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To account for our revenue arrangements, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligations.

 

For contracts determined to be within the scope of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or the “Topic 606”), we assess the goods or services promised within each contract for the purpose of identifying them as performance obligations. We must apply judgement in assessing whether each promised good or service is distinct. If a promised good or service is not distinct, we will combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

 

The transaction price is then determined and allocated to the identified performance obligations in proportion to their estimated fair value, which requires significant judgment. Variable consideration, which is estimated using the expected value method or the most likely amount method, is included in the transaction price only if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

 

For arrangements that include development, regulatory or sales milestone payments, we evaluate whether the milestones are probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

 

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The following table summarizes our revenue streams from contracts with customers for the three and nine months ended September 30, 2019 and 2018 (in thousands):

 

 

Product sales – represent revenue from sales of AZEDRA directly to hospitals. Our performance obligations are to provide AZEDRA based on sales orders from hospitals, which have been verified by our commercial team as properly credentialed to receive, handle, administer and dispose of radioactive materials. We recognize revenue after the customer takes title and has obtained control of the product. Our contracts with hospitals stipulate that product is shipped free on-board destination. We invoice hospitals after the products have been delivered and invoice payments are generally due within 60 days of invoice date. We record sales to hospitals based on AZEDRA’s list price per mCi and the amount prescribed based upon a dosimetric assessment of each patient. We record product sales net of any variable consideration due to rebates and discounts provided under governmental and other programs, and other sales-related deductions, such as product returns and copay assistance programs. Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.

 

 

Royalty income – represents revenue from the sales-based royalties under our intellectual property licensing arrangements and is recognized upon net sales of the licensed products.

 

License and other revenue – represent revenue from upfront payments (fixed consideration) and development and sales milestones, sublicense payments, support and service payments and sales-based bonus payments (variable consideration) under our licensing or software arrangements. The fixed consideration will be recognized as revenue at the time when the transfer of know-how is completed. The variable consideration will be estimated using the most likely amount method and recognized only when we have “a high degree of confidence” that revenue will not be reversed in a subsequent reporting period. The other revenue also includes revenue from product sales of research reagents, that is recognized upon shipment to the end customer (i.e. control of the product is deemed to be transferred).

 

We had receivable contract balances of $6.2 million and $3.8 million as of September 30, 2019 and December 31, 2018, respectively, primarily related to the royalty revenue and upfront and milestone payments under our partnerships, which are included in license and other revenue (see Note 5. Accounts Receivable).

 

Restricted Cash

 

Restricted cash included in long-term assets of $3.3 million and $1.5 million at September 30, 2019 and December 31, 2018, respectively, represents collateral for a letter of credit securing a lease obligation (for both periods), collateral for a letter of credit related to equipment purchases and a security deposit with the German District Court related to the PSMA-617 litigation (for the 2019 period). We believe the carrying value of this asset approximates fair value.

 

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 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, 2019 or 2018.

 

Leases

 

We determine whether an arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid by using the lease term and discount rate determined at lease commencement. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate to determine the present value of our lease payments. Our leases may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. We recognize the operating right-of-use (“ROU”) lease assets at amounts equal to the lease liability adjusted for prepaid or accrued rent, remaining balance of any lease incentives and unamortized initial direct costs.

 

The operating lease liabilities are reported in other current liabilities and other noncurrent liabilities and the related ROU lease assets are reported in other noncurrent assets on our condensed consolidated balance sheets. Lease expense for our operating leases is calculated on a straight-line basis over the lease term and is reported in research and development and selling, general and administrative expenses on our condensed consolidated statements of operations. We do not recognize a lease liability or ROU lease assets for leases whose lease terms, at commencement, are twelve months or less, or for leases which are below the established capitalization threshold.

 

 

Property and Equipment

 

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $3.5 million and $2.7 million as of September 30, 2019 and December 31, 2018, respectively. The following table summarizes our property and equipment (in thousands):

 

 

Note 2. New Accounting Pronouncements 

 

Recently Adopted

 

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases (Topic 842). This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and liabilities on their balance sheet that arise from leases with terms longer than 12 months as well as provide disclosures with respect to certain qualitative and quantitative information related to their leasing arrangements.

 

The FASB has subsequently issued the following amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019, and which we collectively refer to as the new leasing standards:

 

●

ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired prior to adoption of Topic 842 and that were not previously accounted for as leases under the prior standard, ASC 840, Leases.

●

ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02.

●

ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component.

●

ASU No. 2018-20, Narrow-Scope Improvements for Lessors, which contains certain narrow scope improvements to the guidance issued in ASU 2016-02.

●

ASU No. 2019-01, Leases (Topic 842): Codification Improvements.

 

We adopted the new leasing standards on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019 and did not adjust comparative periods. We also elected the package of practical expedients permitted under this standard, which among other things, allowed us to carry forward the lease classification for our existing leases. In preparation for the adoption of this standard and to enable preparation of the required financial information, we implemented new internal controls and processes.

 

The adoption of this standard impacted our 2019 opening consolidated balance sheet as we recorded operating lease liabilities of $15.3 million and ROU lease assets of $13.5 million, which equals the lease liabilities net of deferred rent and lease incentives previously recorded on our balance sheet under the old guidance. The adoption of this standard did not have an impact on our consolidated statements of operations or cash flows.

 

 

Recently Issued 

 

In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”), Fair Value Measurement - Disclosure Framework (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are currently assessing the timing of adopting the updated provisions and the impact of the updated provisions on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and in April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amend the scope and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. This ASU addresses certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

Note 3. Net Loss Per Share

 

Our basic net loss per share amounts have been computed by dividing net loss by the weighted-average number of common shares outstanding during the period. For the three and nine months ended September 30, 2019 and 2018, we reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive.

 

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

 

 

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 per share (in thousands):

 

 

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⁽¹⁾ Calculated as follows: (a) the contingent consideration liability balance divided by (b) the closing stock price of our common stock.

 

 

 

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, restricted cash, accounts receivable, other current assets, other assets, accounts payable and accrued expenses approximated their fair values as of September 30, 2019 and December 31, 2018.

 

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):

 

 

 

 

The contingent consideration liability of $4.3 million as of September 30, 2019 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 and/or from proceeds received from license revenue (in thousands):

 

 

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):

 

 

 

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.

 

Significant changes in any of the probabilities of success or the probabilities as to the periods in which milestones will be achieved would result in a significantly higher or lower fair value measurement. 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, 2019 and December 31, 2018 (in thousands). The decrease in the contingent consideration liability of $6.7 million during the nine months ended September 30, 2019 was primarily due to an $8.0 million payment for the AZEDRA first commercial sale milestone, which was partially offset by an increase in the AZEDRA sales forecasts associated with a study to expand the label for AZEDRA and a decrease in the discount period used to calculate the present value of the contingent consideration liability.

 

 

 

 

For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated (in thousands):

 

 

 

Note 5. Accounts Receivable

 

Our accounts receivable represents amounts due to us from royalties, collaborators, AZEDRA product sales and, to a small extent, sales of research reagents, and consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

 

 

 

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

 

Recent Acquisition

 

In February 2019, we acquired the AZEDRA manufacturing assets for $8.0 million cash consideration and entered into a sublease agreement for the radiopharmaceutical manufacturing facility located in Somerset, New Jersey. The Somerset manufacturing site serves as the commercial facility for AZEDRA and will also provide manufacturing support for the Company’s development stage radiopharmaceuticals, including 1095. The production of AZEDRA uses a proprietary Ultratrace^® process which concentrates the MIBG targeted radiolytic activity by eliminating non-therapeutic “cold” MIBG molecules, giving AZEDRA a uniquely high specific activity.

 

Purchase Price Allocation: We accounted for this acquisition as a business combination by allocating the consideration we paid to the fair values of the assets acquired at the effective date of the acquisition, as summarized below. The difference between the fair value of the acquisition consideration and the estimated fair value of the identifiable assets represents potential future economic benefits arising from the acquisition, and has been recorded as goodwill.

 

 

The following table summarizes the allocation of the consideration paid to the estimated fair values of the assets acquired as of the acquisition date (in thousands):

 

 

The replacement cost method, a variation of the cost approach, was applied to assess the value of the assets acquired by Progenics. The principle behind this method is that the value represents the current cost of a similar new asset having the nearest equivalent utility as the asset being valued. It generally represents the maximum amount that a prudent investor will pay for a comparable asset. The cost approach provides a systematic framework for estimating the value of tangible or intangible assets based on the economic principle of substitution, and that no prudent investor will purchase an existing asset for more than it will cost to create a comparable asset. Under this approach, value is estimated by developing the cost to either replace or reproduce (replicate) the asset of similar utility.

 

The acquired Somerset intangible assets represent manufacturing know-how, which is comprised of documented technical data and information, formulae, standards, specifications, processes, methods, code books, as well as all information, knowledge, trade practices and secrets utilized by the Somerset facility in manufacturing of the AZEDRA. We estimate the remaining useful life of the Somerset intangible to be approximately six years.

 

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, AZEDRA product rights intangible and Somerset intangible, are amortized over the relevant estimated useful lives. 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, 2019 or 2018.

 

 

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

 

 

 

The following table reflects the components of the finite-lived intangible assets as of September 30, 2019 (in thousands):

 

 

 

 

 

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, 2019 and December 31, 2018 (in thousands):