NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
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 PyL
TM
), and 3) imaging analysis tools.
In February 2011, 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”)). In September 2014, 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 and 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.
Our current principal sources of revenue from operations are royalty, development and commercial milestones, and sublicense revenue-sharing payments from Valeant relating to RELISTOR. 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 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 March 31, 2017, we had $126.3 million of cash and cash equivalents, a decrease of $12.6 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.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
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. Accounts payable, which was historically combined with accrued expenses on our consolidated balance sheet, has been presented as a separate line item for all periods presented in these unaudited condensed consolidated financial statements.
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. We paid $368 thousand to the minority interest shareholders in connection with the acquisition of the remaining shares of EXINI.
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
Each of our international subsidiaries generally considers 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 months ended March 31, 2017 or 2016.
Property and Equipment
Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $1.0 million and $0.8 million as of March 31, 2017 and December 31, 2016, respectively. The following table summarizes our property and equipment (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Machinery and equipment
|
|
$
|
2,224
|
|
|
$
|
1,493
|
|
Leasehold improvements
|
|
|
1,716
|
|
|
|
1,640
|
|
Computer equipment
|
|
|
701
|
|
|
|
695
|
|
Furniture and fixtures
|
|
|
878
|
|
|
|
877
|
|
Construction in progress
|
|
|
221
|
|
|
|
893
|
|
Property and equipment, gross
|
|
|
5,740
|
|
|
|
5,598
|
|
Less - accumulated depreciation
|
|
|
(1,038
|
)
|
|
|
(838
|
)
|
Property and equipment, net
|
|
$
|
4,702
|
|
|
$
|
4,760
|
|
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
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 three months ended March 31, 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 2017-04 (“ASU 2017-04”),
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The update 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) – Restricte
d 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 annual reporting periods 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. Early application is permitted for all entities. We are currently evaluating the impact of this new standard on our consolidated financial statements.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
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 are currently evaluating the impact of this standard 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. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and interim periods therein. 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 are in the process of evaluating our significant revenue contracts and reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts and the impact the new standard might have on our consolidated financial statements and disclosures. In addition, we are in the process of identifying the appropriate changes to business processes, systems, and controls to support recognition and disclosure under the new standard. We expect to adopt the new revenue standard in the first quarter of 2018, applying the modified retrospective transition method.
Note 3. Net Loss Per Share
Our basic net loss per share attributable to Progenics amounts have been computed by dividing net loss attributable to Progenics by the weighted-average number of common shares outstanding during the period. For the three months ended March 31, 2017 and 2016, 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):
|
|
Net loss
|
|
|
Weighted-average
|
|
|
|
|
|
|
|
attributable
|
|
|
shares
|
|
|
|
|
|
|
|
to Progenics
|
|
|
outstanding
|
|
|
Per share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
amount
|
|
Three months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(16,360
|
)
|
|
|
70,196
|
|
|
$
|
(0.23
|
)
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(12,655
|
)
|
|
|
69,946
|
|
|
$
|
(0.18
|
)
|
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
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):
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
1,150
|
|
|
|
5,411
|
|
Contingent consideration liability
|
|
|
1,706
|
|
|
|
4,267
|
|
Total securities excluded
|
|
|
2,856
|
|
|
|
9,678
|
|
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 March 31, 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 March 31, 2017
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Balance at
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
March 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
122,351
|
|
|
$
|
122,351
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
$
|
122,351
|
|
|
$
|
122,351
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
|
$
|
16,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,100
|
|
Total liabilities
|
|
$
|
16,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,100
|
|
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Balance at
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
December 31, 2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
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 estimated fair value of the contingent consideration liability of $16.1 million as of March 31, 2017, represents future potential milestone payments to former MIP stockholders. 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 March 31, 2017 and December 31, 2016 (in thousands). The increase in the contingent consideration liability of $1.9 million during the three months ended March 31, 2017 was primarily attributable to an increase in the estimated probability of success for AZEDRA given our successful completion of the registrational study and a reduction in the discount period.
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Range
|
|
|
|
2017
|
|
Valuation Technique
|
|
Unobservable Input
|
|
(Weighted-Average)
|
|
Contingent Consideration Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AZEDRA commercialization
|
|
$
|
5,100
|
|
Probability adjusted discounted
|
|
Probability of success
|
|
|
|
72%
|
|
|
|
|
|
|
|
cash flow model
|
|
Period of expected milestone achievement
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
10%
|
|
|
1404 commercialization
|
|
|
4,800
|
|
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
|
|
|
5,800
|
|
Monte-Carlo simulation
|
|
Probability of success
|
|
|
16%
|
-
|
72%
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
10%
|
|
|
Total
|
|
$
|
16,100
|
|
|
|
|
|
|
|
|
|
|
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
Range
|
|
|
|
2016
|
|
Valuation Technique
|
|
Unobservable Input
|
|
|
(Weighted-Average)
|
|
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)
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
14,200
|
|
|
$
|
18,800
|
|
Fair value change included in net loss
|
|
|
1,900
|
|
|
|
200
|
|
Balance at end of period
|
|
$
|
16,100
|
|
|
$
|
19,000
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,900
|
|
|
$
|
200
|
|
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 March 31, 2017 and December 31, 2016 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Royalties
|
|
$
|
1,847
|
|
|
$
|
2,407
|
|
Collaborators
|
|
|
202
|
|
|
|
2,000
|
|
Other
|
|
|
48
|
|
|
|
457
|
|
Accounts receivable, net
|
|
$
|
2,097
|
|
|
$
|
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.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
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 March 31, 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
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
Balance at March 31, 2017
|
|
$
|
13,074
|
|
|
$
|
28,700
|
|
|
$
|
1,828
|
|
|
|
Goodwill
|
|
|
IPR&D
|
|
|
Other
Intangible
Assets
|
|
Balance at January 1, 2016
|
|
$
|
13,074
|
|
|
$
|
28,700
|
|
|
$
|
2,093
|
|
Amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
Balance at March 31, 2016
|
|
$
|
13,074
|
|
|
$
|
28,700
|
|
|
$
|
2,040
|
|
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 March 31, 2017 and December 31, 2016 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Loss contingency for litigation
|
|
$
|
4,000
|
|
|
$
|
4,000
|
|
Accrued legal and professional fees
|
|
|
1,003
|
|
|
|
1,123
|
|
Accrued consulting and clinical trial costs
|
|
|
5,487
|
|
|
|
6,933
|
|
Accrued payroll and related costs
|
|
|
1,015
|
|
|
|
1,957
|
|
Other
|
|
|
1,200
|
|
|
|
1,751
|
|
Accrued expenses
|
|
$
|
12,705
|
|
|
$
|
15,764
|
|
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 10. 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.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
Former Employee Litiga
tion
On January 4, 2017, we settled all claims against us under a federal action brought in 2010 by a 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. In connection with this settlement, we and the former employee exchanged mutual releases and we are to pay an aggregate sum of $4.0 million to the former employee and his attorneys, which is included in accrued expenses on our consolidated balance sheet at March 31, 2017. We have $1.7 million held by the District Court in escrow and recorded as restricted cash in other current assets on our consolidated balance sheet at March 31, 2017.
Abbreviated New Drug Application Litigations
On October 7, 2015 Progenics, 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, Progenics, 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.
In October 2016, Progenics, 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.
In accordance with the Drug Price Competition and Patent Term Restoration Act (commonly referred to as the Hatch-Waxman Act), Progenics and Valeant timely commenced litigation against each of these 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 addition to the above described ANDA notifications, in October 2015 Progenics received notices of opposition to three European patents relating to methylnaltrexone. The oppositions were filed separately by each of Actavis Group PTC ehf. and Fresenius Kabi Deutschland GmbH.
Each of the above-described proceedings is in its early stages and Progenics and Valeant continue to cooperate closely to vigorously defend and enforce RELISTOR intellectual property rights. Pursuant to the RELISTOR license agreement between Progenics and Valeant, Valeant has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement.
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%.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
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 March 31, 2017, and are being amortized over the estimated term of the debt using the effective interest method. For the three months ended March 31, 2017, we recognized interest expense, including amortization of the debt discount, related to the Royalty-Backed Loan, of $1.3 million. On March 31, 2017, we paid HCRP the accrued interest due for the quarter of $1.2 million.
The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs require that we make estimates that could impact the short- and long-term classification of these costs, as well as the period over which these costs will be amortized. As of March 31, 2017, the outstanding balance of the Royalty-Backed Loan was $49.5 million, inclusive of payment-in-kind interest expense of $0.8 million and net of unamortized debt discount of $1.3 million.
As of March 31, 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 March 31, 2017 (in thousands):
|
|
Foreign
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
Translation
|
|
|
AOCL
|
|
Balance at January 1, 2017
|
|
$
|
(85
|
)
|
|
$
|
(85
|
)
|
Foreign currency translation adjustment
|
|
|
18
|
|
|
|
18
|
|
Balance at March 31, 2017
|
|
$
|
(67
|
)
|
|
$
|
(67
|
)
|
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
We did not have any reclassifications out of AOCL to losses during the three months ended March 31, 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 three months ended March 31, 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
|
|
|
941
|
|
|
$
|
11.30
|
|
|
|
|
|
Exercised
|
|
|
(35
|
)
|
|
$
|
6.62
|
|
|
|
|
|
Cancelled
|
|
|
(46
|
)
|
|
$
|
6.36
|
|
|
|
|
|
Expired
|
|
|
(28
|
)
|
|
$
|
26.66
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
5,719
|
|
|
$
|
8.11
|
|
|
|
6.29
|
|
Exercisable at March 31, 2017
|
|
|
3,889
|
|
|
$
|
7.96
|
|
|
|
4.86
|
|
Vested and expected to vest at March 31, 2017
|
|
|
5,285
|
|
|
$
|
8.04
|
|
|
|
6.03
|
|
The weighted average fair value of options granted during the three months ended March 31, 2017 and 2016 was $7.60 and $3.07 per share, respectively.
The total intrinsic value (the excess of the market price over the exercise price) was approximately $15.1 million for stock options outstanding, $11.6 million for stock options exercisable, and $14.5 million for stock options vested and expected to vest as of March 31, 2017. The total intrinsic value for stock options exercised during the three months ended March 31, 2017 was approximately $167 thousand. No stock options were exercised during the three months ended March 31, 2016.
PROGENICS PHARMACEUTICALS, INC
.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(U
naudited)
- Continued
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
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
2.22
|
%
|
|
|
1.55
|
%
|
Expected life (in years)
|
|
|
6.73
|
|
|
|
6.71
|
|
Expected volatility
|
|
|
72
|
%
|
|
|
75
|
%
|
Expected dividend yield
|
|
|
--
|
|
|
|
--
|
|
Stock-based compensation expense for the three months ended March 31, 2017 and 2016 was recorded in our condensed consolidated statement of operations as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development expenses
|
|
$
|
235
|
|
|
$
|
275
|
|
General and administrative expenses
|
|
|
368
|
|
|
|
301
|
|
Total stock-based compensation expense
|
|
$
|
603
|
|
|
$
|
576
|
|
At March 31, 2017, unrecognized stock-based compensation expense related to stock options was approximately $7.5 million and is expected to be recognized over a weighted average period of approximately 2.78 years.