UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
________________
FORM
10-K
(Mark
One)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
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Or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ___________ to
___________
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Commission
File No. 000-23143
________________
PROGENICS
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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13-3379479
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification Number)
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777
Old Saw Mill River Road
Tarrytown,
NY 10591
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (914) 789-2800
Securities
registered pursuant to Section 12(b) of the Act:
Title of each
class
Name of each exchange on which
registered
Common Stock, par value $0.0013 per
share The NASDAQ Stock Market
LLC
Securities
registered pursuant to Section 12(g) of the Act:
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None
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________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form
10-K ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Act:
Large
Accelerated Filer ¨
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Accelerated
Filer x
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Non-accelerated
Filer ¨ (Do not check if
a smaller reporting company)
|
Smaller
Reporting Company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act).
Yes o No
x
The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant on June 30, 2008, based upon the closing price of the Common
Stock on The NASDAQ Stock Market LLC on that date of $15.87 per share, was
$244,987,904
(1).
(1)
|
Calculated
by excluding all shares that may be deemed to be beneficially owned by
executive officers, directors and five percent stockholders of the
Registrant, without conceding that any such person is an “affiliate” of
the Registrant for purposes of the Federal securities
laws.
|
As of
March 6, 2009, 30,782,252 shares of Common Stock, par value $.0013 per share,
were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Specified
portions of the Registrant’s definitive proxy statement to be filed in
connection with solicitation of proxies for its 2009 Annual Meeting of
Shareholders are hereby incorporated by reference into Part III of this
Form 10-K where such portions are referenced.
PART
I
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Item
1.
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2
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Item
1A.
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13
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Item
1B.
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23
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Item
2.
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24
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Item
3.
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24
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Item
4.
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24
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PART
II
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Item
5.
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25
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Item
6.
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26
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Item
7.
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27
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Item
7A.
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44
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Item
8.
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45
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Item
9.
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45
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Item
9A.
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45
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Item
9B.
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45
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PART
III
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Item
10.
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46
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Item
11.
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46
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Item
12.
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46
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Item
13.
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46
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Item
14.
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46
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PART
IV
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Item
15.
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47
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F-1
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S-1
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E-1
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PART
I
This document contains statements
that do not relate strictly to historical fact, any of which may be forward-looking statements within
the meaning of the U.S.
Private Securities
Litigation Reform Act of 1995. When we use the words “anticipates,”
“plans,” “expects” and similar expressions, we are identifying forward-looking
statements. Forward-looking statements involve known and unknown risks and
uncertainties which may cause our actual results, performance or achievements to
be materially different from those expressed or implied by forward-looking
statements. While it is
impossible to identify or predict all such matters, these differences may result
from, among other things, the inherent uncertainty of the timing and success of,
and expense associated with, research, development, regulatory approval and
commercialization of our products and product candidates, including the risks
that clinical trials will not commence or proceed as planned; products appearing
promising in early trials will not demonstrate efficacy or safety in
larger-scale trials; clinical trial data on our products and product candidates
will be unfavorable; our products will not receive marketing approval from
regulators or, if approved, do not gain sufficient market acceptance to justify
development and commercialization costs; we, our collaborators or others might
identify side effects after the product is on the market; or efficacy or safety
concerns regarding marketed products, whether or not originating from subsequent
testing or other activities by us, governmental regulators, other entities or
organizations or otherwise, and whether or not scientifically justified, may
lead to product recalls, withdrawals of marketing approval, reformulation of the
product, additional pre-clinical testing or clinical trials, changes in labeling
of the product, the need for additional marketing applications, declining sales
or other adverse events.
We
are also subject to risks and uncertainties associated with the actions of our
corporate, academic and other collaborators and government regulatory agencies,
including risks from market forces and trends, such as those relating to the
recently-announced acquisition of our RELISTOR®
collaborator, Wyeth Pharmaceuticals, by Pfizer, Inc.; potential product
liability; intellectual property, litigation, environmental and other risks; the
risk that licenses to intellectual property may be terminated for our failure to
satisfy performance milestones; the risk of difficulties in, and regulatory
compliance relating to, manufacturing products; and the uncertainty of our
future profitability.
Risks
and uncertainties also include general economic conditions, including interest
and currency exchange-rate fluctuations and the availability of capital; changes
in generally accepted accounting principles; the impact of legislation and
regulatory compliance; the highly regulated nature of our business, including
government cost-containment initiatives and restrictions on third-party payments
for our products; trade buying patterns; the competitive climate of our
industry; and other factors set forth in this document and other reports filed
with the U.S. Securities and Exchange Commission (SEC). In particular, we cannot
assure you that RELISTOR will be commercially successful or be approved in the
future in other formulations, indications or jurisdictions, or that any of our
other programs will result in a commercial product.
We do not
have a policy of updating or revising forward-looking statements, and we assume
no obligation to update any statements as a result of new information or future
events or developments. Thus, it should not be assumed that our silence over
time means that actual events are bearing out as expressed or implied in
forward-looking statements.
Available
Information
We file
annual, quarterly and current reports, proxy statements and other documents with
the SEC under the Securities Exchange Act of 1934. The SEC maintains an Internet
website that contains reports, proxy and information statements and other
information regarding issuers, including Progenics, that file electronically
with the SEC. You may obtain documents that we file with the SEC at http://www.sec.gov,
and read and copy them at the SEC’s Public Reference Room at 100 F Street NE,
Washington, DC 20549. You may obtain information on operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. We also make available our
annual, quarterly and current reports and proxy materials on
http://www.progenics.com.
Progenics
Pharmaceuticals, Inc. is a biopharmaceutical company focusing on the development
and commercialization of innovative therapeutic products to treat the unmet
medical needs of patients with debilitating conditions and life-threatening
diseases. Our principal programs are directed toward supportive care, virology
and oncology. We commenced principal operations in 1988, became publicly traded
in 1997 and throughout have been engaged primarily in research and development
efforts, developing manufacturing capabilities, establishing corporate
collaborations and raising capital.
In the
area of supportive care,
our first commercial product, RELISTOR® (methylnaltrexone bromide),
was approved by the U.S. Food and Drug Administration (FDA) for sale in the
United States in April 2008. Our collaboration partner, Wyeth Pharmaceuticals,
commenced sales of RELISTOR subcutaneous injection in June, and we have begun
earning royalties on world-wide sales. Regulatory approvals have also been
obtained in Canada, the European Union, Australia and Venezuela, and marketing
applications have been approved or are pending or scheduled in other countries.
In October, we out-licensed to Ono Pharmaceutical Co., Ltd., Osaka, Japan, the
rights to subcutaneous RELISTOR in Japan. We continue development and clinical
trials with respect to other indications for RELISTOR and our other product
candidates.
In
January 2009, Wyeth and Pfizer Inc. announced a definitive agreement under which
Pfizer is to acquire Wyeth. We understand that the transaction is currently
expected to close in late 2009 and is subject to a variety of conditions. The
proposed acquisition of Wyeth by Pfizer does not trigger any change-of-control
provisions in our collaboration with Wyeth, and we believe that if the
acquisition occurs, the combined Pfizer/Wyeth organization will continue to have
the same rights and responsibilities under the collaboration following the
acquisition as Wyeth had before. We cannot, however, predict how a combined
Pfizer and Wyeth may view the utility and attractiveness of our collaboration.
See Supportive Care,
Licenses – Progenics’ Licenses
– Wyeth and Risk
Factors -- We are dependent on Wyeth and Ono to develop and commercialize
RELISTOR in their respective areas, exposing us to significant risks, including
that Wyeth’s announced acquisition by Pfizer may adversely affect our Collaboration,
below.
In the
area of virology, we are
developing two viral-entry inhibitors: a humanized monoclonal antibody, PRO 140, for treatment of
human immunodeficiency virus (HIV), the virus that causes acquired
immunodeficiency syndrome (AIDS), and a proprietary orally-available
small-molecule drug candidate, designated PRO 206, for treatment of
hepatitis C virus infection (HCV). We have recently selected for further
clinical development the subcutaneous form of PRO 140 for treatment of HIV
infection, which has the potential for convenient, weekly self-administration,
and we are conducting preclinical development activities in preparation for
filing an Investigational New Drug (IND) application for PRO 206. We are also
engaged in research regarding a prophylactic vaccine against HIV infection. See
Virology, below.
In the
area of prostate cancer,
we are conducting a phase 1 clinical trial of a fully human monoclonal
antibody-drug conjugate (ADC) directed against prostate specific membrane
antigen (PSMA), a protein found at high levels on the surface of prostate cancer
cells and also on the neovasculature of a number of other types of solid tumors.
We are also developing therapeutic vaccines designed to stimulate an immune
response to PSMA. See Oncology
– Prostate Cancer, below.
Product Licensing. We also
seek out promising new products and technologies around which to build new
development programs or enhance existing programs. We own the worldwide
commercialization rights to each of our product candidates except RELISTOR,
commercialization of which is the responsibility of Wyeth and Ono in their
respective territories. We may also seek collaboration partners to accelerate
development and assist in achieving full commercialization of our product
candidates.
Following
is a summary of our principal programs and product candidates:
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Lead
commercial product
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Approved
indication
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Status
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Supportive
Care
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RELISTOR-Subcutaneous
injection
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Approved
U.S. label: Treatment of opioid-induced constipation (OIC) in advanced
illness patients receiving palliative care when laxative therapy has not
been sufficient (note 1).
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Marketed
in the U.S., E.U., Australia, Canada, Venezuela and
elsewhere.
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Program/product
candidates
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Proposed
therapeutic area
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Status
(note 2)
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Supportive
Care
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RELISTOR-Subcutaneous
injection
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Treatment
of OIC in patients with chronic pain not related to cancer.
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Phase
3
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RELISTOR-Subcutaneous
injection
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Treatment
of OIC in patients during rehabilitation from an orthopedic surgical
procedure.
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Phase
2
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RELISTOR-Intravenous
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Management
of post-operative ileus.
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Phase
3
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RELISTOR-Oral
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Treatment
of OIC.
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Phase
2
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Virology
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Human
Immunodeficiency Virus (HIV)
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PRO
140
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Treatment
of HIV infection.
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Phase
2
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ProVax
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Treatment
and prevention of HIV infection.
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Research
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Hepatitis
C Virus (HCV)
PRO
206
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Treatment
of HCV infection.
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Preclinical
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Oncology
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Prostate
cancer/ PSMA-based therapies
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PSMA
ADC
Recombinant
protein vaccine (rsPSMA)
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Treatment
of prostate cancer.
Immunotherapy
for prostate cancer.
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Phase
1
Phase
1
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Viral-vector
vaccine (PSMA VRP)
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Immunotherapy
for prostate cancer.
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Phase
1
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(1)
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RELISTOR
is a Wyeth trademark. The use of RELISTOR beyond four months has not been
studied. Full U.S. prescribing information is available at
www.RELISTOR.com.
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(2)
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Research
means initial research related to specific molecular targets, synthesis of
new chemical entities, assay development or screening for
identification of lead compounds.
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Pre-clinical
means a lead compound undergoing toxicology, formulation and other testing
in preparation for clinical trials.
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Phase
1-3 clinical trials are safety and efficacy tests in
humans:
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Phase
1: Initial evaluation of safety in humans; study method of action and
metabolization.
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Phase
2: Evaluation of safety, dosing and activity or efficacy; continue safety
evaluation.
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Phase
3: Larger scale evaluation of safety, efficacy and dosage.
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Supportive
Care
About Opioids.
Opioid-based medications such as morphine and codeine are the mainstay of
health care practitioners to control moderate-to-severe pain. We estimate that
in 2007 approximately 240 million prescriptions for opioids were written in the
U.S. Physicians prescribe opioids for patients receiving palliative care,
undergoing surgery or experiencing chronic pain, as well as for other medical
conditions.
Opioids
relieve pain by interacting with receptors located in the brain and spinal cord,
which comprise the central nervous system. At the same time, opioids also
activate receptors outside the central nervous system, often resulting in
constipation. As a result of opioid-induced constipation (OIC), many patients
may stop or reduce their opioid therapy, opting to endure pain in order to
obtain relief from their OIC and its associated side effects.
RELISTOR, the first approved
treatment for OIC that addresses the underlying mechanism of OIC, is a
selective, peripherally acting, mu-opioid-receptor antagonist that decreases the
constipating side effects induced by opioid pain medications in the
gastrointestinal tract without diminishing the ability of these medications to
relieve pain. Relief of OIC is an important need not adequately met by any other
approved drug. Because of its chemical composition, RELISTOR has restricted
ability to cross the blood-brain barrier and enter the central nervous system,
where pain is perceived. Outside the central nervous system, RELISTOR competes
with opioid pain medications for binding sites on opioid receptors, displacing
the pain medications only in the periphery and selectively “turning off” the
constipating effects of those medications on the gastrointestinal tract without
affecting pain relief occurring in the central nervous system.
Subcutaneous
RELISTOR. In 2008, we earned $25.0 million in milestone payments from
Wyeth for FDA and European approvals of subcutaneous RELISTOR for the advanced
illness setting, and in the second quarter of 2008 we began earning royalties on
Wyeth’s sales of that product. RELISTOR net sales and related royalties earned
in 2008 are set forth below. Our recognition of royalty revenue for financial
reporting purposes is explained in Management’s Discussion and Analysis
of Financial Condition and Results of Operations and our financial
statements elsewhere in this document.
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Net
Sales
By
Wyeth
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Royalties
Earned
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(in
thousands)
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Quarter
Ended
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|
|
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June
30, 2008
|
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$ |
2,100 |
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$ |
321 |
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September
30, 2008
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|
800 |
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117 |
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December
31, 2008
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1,500 |
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227 |
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Total
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$ |
4,400 |
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$ |
665 |
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We and
Wyeth are also developing subcutaneous RELISTOR for treatment of OIC outside the
advanced illness setting, in individuals with chronic pain not related to
cancer, such as severe back pain that requires treatment with opioids (a phase 3
trial conducted by Wyeth), and in individuals rehabilitating from an orthopedic
surgical procedure in whom opioids are used to control post-operative pain (a
hypothesis-generating phase 2 trial conducted by us). We are no longer enrolling
patients in this latter trial and are analyzing data from the treated
population. Based on positive results from the one-month blinded portion of the
phase 3 chronic pain study, we and Wyeth recently initiated an FDA-required
one-year, open-label safety study in chronic, non-cancer pain patients which is
intended to yield a consolidated safety database to enable filing a supplemental
New Drug Application (sNDA), which is now planned for submission by the end of
2010 for treatment of OIC in the chronic, non-cancer pain
population.
Intravenous
RELISTOR. We and Wyeth also have had in development an intravenous
formulation of RELISTOR for the management of post-operative ileus (POI), a
temporary impairment of the gastrointestinal
tract function. Results from two phase 3 clinical trials of this formulation
showed that treatment did not achieve primary or secondary end points. Recent
results from a third phase 3 trial evaluating an intravenous formulation of
RELISTOR in patients following abdominal hernia repair have confirmed these
earlier findings.
Oral RELISTOR.
Wyeth is leading development of an oral formulation of RELISTOR for the
treatment of OIC in patients with chronic, non-cancer pain. We and Wyeth are
evaluating information from optimization studies of a formulation of this
product candidate to determine the next stages of development.
Collaborative
Marketing and Development Agreements. Under our Collaboration with Wyeth,
we share responsibilities for developing and obtaining marketing approval of
RELISTOR. Wyeth is responsible for commercializing all formulations of RELISTOR
worldwide other than Japan, where we have licensed the rights to the
subcutaneous formulation of RELISTOR to Ono. We have an option, under certain
circumstances, to co-promote with Wyeth the sale of any or all of the
formulations of RELISTOR in the United States. Under the Wyeth Collaboration, we
are entitled to receive, in addition to royalties on net sales, payments as
developmental and commercialization milestones for RELISTOR are achieved and
reimbursement by Wyeth for expenses we incur in connection with the development
of RELISTOR under an agreed-upon development plan and budget. Manufacturing
expenses for RELISTOR are funded by Wyeth.
Under our
exclusive license agreement with Ono, in November 2008 we received from Ono an
upfront payment of $15.0 million, and are entitled to receive potential
development milestones of up to $20.0 million, commercial milestones and
royalties on sales by Ono of subcutaneous RELISTOR in Japan. Ono also has the
option to acquire from us the rights to develop and commercialize in Japan other
formulations of RELISTOR, including intravenous and oral forms, on terms to be
negotiated separately. See Progenics’ Licenses – Wyeth
and – Ono
Pharmaceutical, below. Some of our rights to RELISTOR arise under a
license from the University of Chicago. See Progenics’ Licenses – University of
Chicago, below.
Virology
HIV. An estimated 33 million
people worldwide are infected with HIV, which causes a slowly progressing
deterioration of the immune system resulting in AIDS. Although the majority of
infected people reside in sub-Saharan Africa, the current commercial market is
generally limited to the U.S. and Europe, where it is estimated that over two
million people are infected.
HIV
specifically infects cells that have the CD4 receptor on their surface, binding
to that receptor and commandeering the cell’s reproductive machinery to create
thousands of copies of itself (viral replication). Cells presenting the CD4
receptor include critical components of the human immune system such as
T-lymphocytes, monocytes, macrophages and dendritic cells, and HIV’s devastating
effects are predominantly due to dysfunction and destruction of these cells
resulting from HIV infection. Our scientists and their collaborators have made
important discoveries in understanding how HIV enters human cells and initiates
viral replication.
Five
classes of products have received marketing approval from the FDA for the
treatment of HIV infection and AIDS. Reverse transcriptase and protease
inhibitors inhibit two different viral enzymes required for HIV to replicate
once it has entered the cell. (Nucleoside and non-nucleoside reverse
transcriptase inhibitors are considered as different classes by researchers and
prescribers alike and have non-overlapping resistance profiles.) Integrase
inhibitors inhibit the enzyme that facilitates integration of HIV genetic
material into the chromosomal DNA of the cell. Entry inhibitors interrupt the
viral life cycle at an earlier point, namely before HIV can bind to and transfer
its genetic material into certain immune system cells in order to initiate the
viral replication process.
The
current standard of HIV care is a regimen of protease and reverse transcriptase
inhibitor therapies, known as combination therapy, which slows the progression
of disease but is not a cure. HIV’s rapid mutation rate results in the
development of viral strains that are resistant to these and other inhibitors, a
process that is accelerated by inconsistent dosing that leads to lower drug
levels and permits viral replication. In addition, many of these currently
approved drugs often produce toxic side effects.
Viral
entry inhibitors, such as our drug candidate PRO 140, represent the newest
class of drugs for HIV patients. Our scientists, in collaboration with
researchers at the Aaron Diamond AIDS Research Center, described in an article
in Nature in 1996 the discovery of a
co-receptor for HIV on the surface of human immune system cells used for HIV
entry. After HIV binds to the CD4 receptor, it then binds to the CCR5
co-receptor, enabling fusion of the virus with the cell membrane, facilitating
entry of the viral genetic information into the cell and subsequent viral
replication. Our PRO 140 program is based on blocking binding of HIV to the CCR5
co-receptor. Further work by other scientists has established the existence of a
second co-receptor, CXCR4, which is considered to be less ubiquitous for HIV-1
viral entry. Some strains of HIV use the CXCR4 co-receptor as a portal of entry
either exclusively or in addition to CCR5. CCR5 viral-entry inhibitors, such as
PRO 140, are active in blocking infection in HIV patients whose virus uses the
CCR5 portal, but do not block the entry of virus that uses the CXCR4
portal.
PRO 140
is a humanized monoclonal antibody designed to block HIV infection by inhibiting
the virus’ ability to bind to and enter immune system cells and initiate the
viral replication process. PRO 140 targets a distinct site on the co-receptor
CCR5. At therapeutic concentrations tested to date, PRO 140’s binding to CCR5
does not appear to interfere with the co-receptor’s normal function in the
body’s inflammatory response. PRO 140 has been granted “Fast Track” status from
the FDA, which facilitates development and expedites regulatory review of drugs
intended to address unmet medical needs for serious or life-threatening
conditions. We have recently selected for further clinical development the
subcutaneous form of PRO 140 for the treatment of HIV infection, with the goal
of developing a long-acting, self-administered therapy. The results from a
recently completed clinical study indicate that subcutaneous PRO 140 has the
potential to be administered weekly.
ProVax is our vaccine product
candidate under development for the prevention of HIV infection or as a
therapeutic treatment for HIV-positive individuals. We are currently performing
research and development on ProVax in collaboration with the Weill Medical
College of Cornell University. We have funded this project via a National
Institutes of Health contract which NIH has committed to fund only through 2008.
We have applied for continued funding for this program and are funding it with
our own resources pending a decision on that application.
ProVax
contains critical surface proteins whose form closely mimics the structures
found on HIV. In a pre-clinical model, ProVax stimulated the production of
specific HIV neutralizing antibodies. When tested in the laboratory, these
antibodies inactivated certain strains of HIV isolated from infected
individuals. The vaccine-stimulated neutralizing antibodies were observed to
bind to the surface of the virus, rendering it non-infectious. Such neutralizing
antibodies against HIV have been difficult to induce with vaccines currently in
development.
HCV. We
have selected a proprietary orally-available small-molecule drug candidate,
designated PRO 206, for
clinical development as a treatment of HCV infection, the most common
blood-borne infection in the U.S. and a major cause of chronic liver disease.
According to the U.S. Centers for Disease Control and Prevention, an estimated
4.1 million Americans (1.6%) have been infected with HCV, of whom 3.2 million
are chronically infected, and there are an estimated 35,000 new HCV infections
in the U.S. each year. It is estimated that more than 170 million people
worldwide are infected with HCV. Chronic hepatitis C, which is under-recognized
due to slow, asymptomatic progression, can lead to cirrhosis and ultimately
liver failure and, as a result, is now the most common reason for liver
transplantation and the leading cause of liver cancer in the U.S.
Our HCV
treatment candidate, an orally available viral-entry inhibitor designed to
prevent HCV from entering and infecting healthy liver cells, has exhibited
favorable results in pre-clinical and in vitro studies. We are
conducting preclinical development activities in preparation for filing an IND
for PRO 206.
Oncology
Prostate
cancer is a common cancer affecting men in the U.S. and a leading cause
of cancer deaths in men each year. The National Cancer Institute estimates that,
based on rates from 2002-2004, one in six men will be diagnosed with cancer of
the prostate during their lifetime. The American Cancer Society estimated that
186,320 new cases of prostate cancer would be diagnosed and that 28,660 men
would die from the disease in 2008 in the U.S.
Conventional
therapies for prostate cancer include radical prostatectomy, radiation, hormone
therapies and chemotherapy. These treatments may have or increase the risk of a
variety of side effects, including impotence, incontinence, high cholesterol
levels and increased blood-clot risk. Hormone therapy and chemotherapy are
generally not intended to be curative and are not actively used to treat
localized, early-stage prostate cancer.
Through
our wholly owned subsidiary, PSMA Development Company LLC (PSMA LLC), we conduct
research and development programs relating to antibody and vaccine therapies
directed against prostate specific membrane antigen, or PSMA, a protein that is
abundantly expressed on the surface of prostate cancer cells as well as cells in
the newly formed blood vessels of many other solid tumors. Our fully human
monoclonal ADC is designed to deliver a chemotherapeutic agent to cancer cells
by targeting the three-dimensional structure of the PSMA protein on these cells
and binding to and internalizing within the cell. We believe a PSMA-directed
therapy may have application in prostate cancer and solid tumors of other types
of cancer. In September 2008, we initiated a phase 1 dose-escalation clinical
study to assess PSMA ADC’s safety, tolerability and initial clinical activity in
patients with progressive, castrate-resistant prostate cancer.
We have
initiated clinical study of a therapeutic vaccine utilizing viral vectors
designed to deliver the PSMA gene to certain immune system cells in order to
generate potent and specific immune responses to prostate cancer cells. In
pre-clinical studies, this vaccine generated a potent dual response against
PSMA, by both antibodies and killer T-cells, the two principal mechanisms used
by the immune system to eliminate abnormal cells. We are also developing a
vaccine combining the PSMA cancer antigen (recombinant soluble PSMA) with an
immune stimulant to induce an immune response against prostate cancer
cells.
Licenses
Progenics
and PSMA LLC are parties to license agreements under which we have in- and/or
out-licensed rights to use certain technologies and materials. These licenses
provide for various royalty, milestone and other payment, commercialization,
sublicensing, patent prosecution and enforcement, insurance, indemnification and
other obligations and rights, and are subject to certain reservations of rights.
Our costs in defending patent rights, both our own and those we license, have
historically not been material. Set forth below is a summary of the more
significant of these licenses.
Progenics’
Licenses
· Under the
Wyeth Collaboration Agreement, we granted to Wyeth an exclusive, worldwide
license to develop and commercialize RELISTOR. In October 2008, we reacquired
the rights to all formulations of RELISTOR in Japan from Wyeth, and out-licensed
the rights to subcutaneous RELISTOR in Japan to Ono (see discussion below). We
are responsible for developing the subcutaneous and intravenous formulations of
RELISTOR in the U.S. until they receive regulatory approval, while Wyeth is
responsible for these formulations outside the U.S. other than Japan. Wyeth is
also responsible for developing the oral formulation of RELISTOR, and any other
formulation the companies may determine to pursue, within the U.S. and the rest
of its territory. We own the rights to all formulations, including the oral
formulation, in Japan, where we have given Ono an exclusive license to the
subcutaneous formulation and have granted Ono an option to acquire licenses on
other formulations in Japan. We own all U.S. regulatory filings and approvals
relating to the subcutaneous and intravenous formulations, and Wyeth owns all
such filings and approvals for the oral formulation. Wyeth also owns all
regulatory filings and approvals for all formulations outside the U.S. other
than in Japan, where Ono owns the filings and approvals relating to subcutaneous
RELISTOR and we retain the rights to other formulations.
Costs for
the development of RELISTOR incurred by Wyeth or us are paid by Wyeth. We are
reimbursed for our out-of-pocket development costs by Wyeth and receive
reimbursement for our efforts based on our employees devoted to them, all
subject to Wyeth’s audit rights and possible reconciliation as provided in the
Collaboration Agreement. As part of its commercialization responsibilities in
its territory, Wyeth is obligated to pay all commercialization costs, including
manufacturing costs, and retains all proceeds from sales of products, subject to
royalties and other amounts payable by Wyeth to us. Decisions with respect to
commercialization of any products developed under the Collaboration Agreement
are made solely by Wyeth.
The
Collaboration Agreement establishes Joint Steering and Joint Development
Committees, each with an equal number of representatives from both Wyeth and us.
The JSC is responsible for coordinating the companies’ key activities, while the
JDC oversees, coordinates and expedites the development of RELISTOR by Wyeth and
us. A Joint Commercialization Committee, composed of company representatives in
number and function according to our respective responsibilities, facilitates
open communication between Wyeth and us on commercialization
matters.
We have
an option to co-promote in the U.S. any of the products developed under the
Collaboration Agreement, subject to certain conditions. The extent of our
co-promotion activities and the fee that we will be paid by Wyeth for our
activities will be established if, as and when we exercise our option. Wyeth
will record all sales of products worldwide (including those sold by us, if any,
under a co-promotion agreement). Wyeth may terminate any co-promotion agreement
if a top-15 pharmaceutical company acquires control of us. Wyeth has also agreed
to certain “standstill” limitations, expiring in June 2009, regarding its
ability to purchase our equity securities and to solicit proxies.
The Wyeth
Collaboration extends, unless terminated earlier, on a country-by-country and
product-by-product basis, until the last-to-expire royalty period for any
product. We may terminate the Wyeth Collaboration at any time upon 90 days
written notice to Wyeth upon Wyeth’s material uncured breach (30 days in the
case of breach of a payment obligation). Wyeth may, with or without cause,
terminate the Collaboration effective on or after the second anniversary of the
first U.S. commercial sale of RELISTOR, by providing Progenics with at least 360
days prior written notice. Wyeth may also terminate the agreement (i) upon 30
days written notice following one or more specified serious safety or efficacy
issues that arise and (ii) upon 90 days written notice of a material uncured
breach by Progenics. Upon termination of the Wyeth Collaboration, the ownership
of the license we granted to Wyeth will depend on which party initiates the
termination and the reason for the termination.
· We have
exclusive rights to develop and commercialize methylnaltrexone, the active
ingredient of RELISTOR, under license from the University of Chicago. We have
the obligation under the license to make milestone and royalty payments to the
University in connection with that development and commercialization that in
general extend to the expiration of the last-to-expire patent.
· Under an
exclusive License Agreement, we have licensed to Ono Pharmaceutical the rights
to subcutaneous RELISTOR in Japan. Under the Ono License, Ono is responsible for
developing and commercializing subcutaneous RELISTOR in Japan, including
conducting the clinical development necessary to support regulatory marketing
approval. Ono is to own the subcutaneous filings and approvals relating to
RELISTOR in Japan. We have received a $15.0 million upfront payment from Ono,
and are entitled to receive up to an additional $20.0 million, payable upon
achievement of development milestones. Ono is also obligated to pay to us
royalties and commercialization milestones on sales by Ono of subcutaneous
RELISTOR in Japan. Ono has the option to acquire from us the rights to develop
and commercialize in Japan other formulations of RELISTOR, including intravenous
and oral forms, on terms to be negotiated separately. Supervision of and
consultation with respect to Ono’s development and commercialization
responsibilities will be carried out by joint committees consisting of members
from both Ono and us. Ono may request us to perform activities related to its
development and commercialization responsibilities beyond our participation in
these committees and specified technology transfer-related tasks which will be
at its expense, and payable to us for the services it requests, at the time we
perform services for them. The Ono License contains, among other terms,
provisions which allow termination by either party upon the occurrence of
certain events.
· Protein Design Labs (now Facet Biotech Corporation)
humanized a murine monoclonal antibody developed by us (humanized PRO 140) and
granted us related licenses under patents and patent applications, in addition
to know-how. In general, these licenses are fully paid after the latest of (i)
the tenth anniversary of the first commercial sale of a product developed
thereunder, (ii) expiration of the last-to-expire patent or (iii) the tenth
anniversary of the latest filed pending patent application. Pending U.S. and
international patent applications and patent-term extensions may extend the
period of our license rights when and if they are allowed, issued or granted. We
may terminate the license on 60 days prior written notice, and either party may
terminate on 30 days prior written notice for an uncured material breach (ten
days for payment default). As of December 31, 2008, we have paid Facet’s
predecessors $5.2 million, and if all milestones are achieved, we will be
obligated to pay an additional approximately $2.0 million. We are also required
to pay annual maintenance fees of $150,000 and royalties on sales of products
developed under the license.
· We have a
letter agreement with the Aaron
Diamond AIDS Research Center pursuant to which we have the exclusive
right to pursue the commercial development, directly or with a partner, of
products related to HIV based on patents jointly owned by ADARC and
us.
· For a
number of years, we have been party to a license agreement with Columbia University under
which we obtained rights to technology and materials for a program we have since
terminated. As of December 31, 2008, we had paid Columbia a total of $890,000
under this license agreement, including $25,000 in royalties. In January 2009,
we and Columbia agreed to terminate and amend certain rights granted in this
license in exchange for a one-time payment of $300,000, which was accrued as of
December 31, 2008. Under this new arrangement, we retain rights to certain
technology for sales of reagents and other purposes, subject to royalties. We do
not expect this new agreement will be material to us.
· For a
number of years, we were party to a license and supply agreement with Aquila Biopharmaceuticals,
Inc., a wholly owned subsidiary of Antigenics Inc., for a program
we have since terminated. In November 2008, the agreement was terminated and a
portion of the contingent shares issued to Aquila in connection with the
agreement have since been cancelled. We do not believe this matter will have any
material effect on us.
PSMA
LLC Licenses
· PSMA LLC
has a worldwide exclusive licensing agreement with Abgenix (now Amgen Fremont, Inc.) to use
its XenoMouse®
technology for generating fully human antibodies to PSMA LLC’s PSMA antigen.
PSMA LLC is obligated to make payments under this license upon the occurrence of
defined milestones associated with the development and commercialization program
for products incorporating an antibody generated utilizing the XenoMouse
technology. As of December 31, 2008, PSMA LLC has paid to Abgenix $850,000 under
this agreement. If PSMA LLC achieves certain milestones specified under the
agreement, it will be obligated to pay Abgenix up to an additional $6.25
million. In addition, PSMA LLC is required to pay royalties based upon net sales
of antibody products, if any. This agreement may be terminated, after an
opportunity to cure, by Abgenix for cause upon 30 days prior written notice.
PSMA LLC has the right to terminate this agreement upon 30 days prior written
notice. If not terminated early, this agreement continues until the later of the
expiration of the XenoMouse technology patents that may result from pending
patent applications or seven years from the first commercial sale of the
products.
· PSMA LLC
also has a worldwide exclusive license agreement with AlphaVax Human Vaccines to use
its AlphaVax Replicon Vector system to create a therapeutic prostate cancer
vaccine incorporating PSMA LLC’s proprietary PSMA antigen. PSMA LLC is obligated
to make payments under the license upon the occurrence of certain milestones
associated with the development and commercialization program for products
incorporating AlphaVax’s system. As of December 31, 2008, PSMA LLC has paid to
AlphaVax $1.7 million under this agreement. If PSMA LLC achieves certain
milestones specified under the agreement, it will be obligated to pay AlphaVax
up to an additional $5.3 million. In addition, PSMA LLC is required to pay
annual maintenance fees of $100,000 until the first commercial sale and
royalties based upon net sales of any products developed using AlphaVax’ system.
This agreement may be terminated, after an opportunity to cure, by AlphaVax
under specified circumstances, including PSMA LLC’s failure to achieve
milestones; the consent of AlphaVax to revisions to the milestones due dates may
not, however, be unreasonably withheld. PSMA LLC has the right to terminate the
agreement upon 30 days prior written notice. If not terminated early, this
agreement continues until the later of the expiration of the patents relating to
AlphaVax’s system or seven years from the first commercial sale of the products
developed using that system. Pending U.S. and international patent applications
and patent-term extensions may extend the period of our license rights when and
if they are allowed, issued or granted.
· PSMA LLC
has a collaboration agreement with Seattle Genetics, Inc., under
which SGI has granted PSMA LLC an exclusive worldwide license to its proprietary
ADC technology. Under the license, PSMA LLC has the right to use this technology
to link chemotherapeutic agents to PSMA LLC’s monoclonal antibodies that target
prostate specific membrane antigen. The ADC technology is based, in part, on
technology licensed by SGI from third parties. PSMA LLC is responsible for
research, product development, manufacturing and commercialization of all
products under the SGI agreement. PSMA LLC may sublicense the ADC technology to
a third party to manufacture ADCs for both research and commercial use. Under
the agreement, PSMA LLC is obligated to make maintenance payments, additional
payments aggregating up to $14.0 million upon the achievement of certain
milestones and to pay royalties to SGI and its licensors, as applicable, on a
percentage of net sales. The SGI agreement terminates at the latest of (i) the
tenth anniversary of the first commercial sale of each licensed product in each
country or (ii) the latest date of expiration of patents underlying the licensed
products. PSMA LLC may terminate the SGI agreement upon advance written notice
to SGI. SGI may terminate the agreement if PSMA LLC fails to cure a breach of an
SGI in-license within a specified time period after written notice. In addition,
either party may terminate the SGI agreement after written notice upon an
uncured breach or in the event of bankruptcy of the other party. As of December
31, 2008, PSMA LLC has paid to SGI approximately $3.6 million under this
agreement, including $1.0 million in milestone payments.
Patents
and Proprietary Technology
Our
policy is to protect our proprietary technology, and we consider the protection
of our rights to be important to our business. In addition to seeking U.S.
patent protection for many of our inventions, we generally file patent
applications in Canada, Japan, European countries that are party to the European
Patent Convention and additional foreign countries on a selective basis in order
to protect the inventions that we consider to be important to the development of
our foreign business. Generally, patents issued in the U.S. are
effective:
·
|
if
the patent application was filed prior to June 8, 1995, for the longer of
17 years from the date of issue or 20 years from the earliest asserted
filing date; or
|
·
|
if
the application was filed on or after June 8, 1995, for 20 years from the
earliest asserted filing date.
|
In
addition, in certain instances, the patent term can be extended up to a maximum
of five years to recapture a portion of the term during which the FDA regulatory
review was being conducted. The duration of foreign patents varies in accordance
with the provisions of applicable local law, although most countries provide for
patent terms of 20 years from the earliest asserted filing date and allow patent
extensions similar to those permitted in the U.S.
We also
rely on trade secrets, proprietary know-how and continuing technological
innovation to develop and maintain a competitive position in our product areas.
We generally require our employees, consultants and corporate partners who have
access to our proprietary information to sign confidentiality
agreements.
Our
patent portfolio relating to our proprietary technologies in the supportive
care, virology and cancer areas is currently comprised, on a worldwide basis, of
171 patents that have been issued and 254 pending patent applications, which we
either own directly or of which we are the exclusive licensee. Our issued
patents expire on dates ranging from 2010 through 2026. Patent-term extensions
and pending patent applications may extend the period of patent protection
afforded our products in development.
We are
aware of intellectual property rights held by third parties that relate to
products or technologies we are developing. For example, we are aware of others
investigating methylnaltrexone and other peripheral opioid antagonists, PSMA or
related compounds, CCR5 monoclonal antibodies and HCV viral entry inhibitors,
and of patents and applications held or filed by others in those areas. While
the validity of issued patents, patentability of claimed inventions in pending
applications and applicability of any of them to our programs are uncertain,
patent rights asserted against us could adversely affect our ability to
commercialize or collaborate with others regarding our products.
The
research, development and commercialization of a biopharmaceutical product often
present alternative development and optimization routes at various stages in the
development process. Preferred routes cannot be identified with certainty at the
outset because they will depend upon subsequent discoveries and test results.
There are numerous third-party patents in our field, and it is possible that to
pursue the preferred development route of one or more of our product candidates
we will need to obtain a license under a patent, which could decrease the
ultimate profitability of the applicable product. If we cannot negotiate a
license, pursuit of a less desirable development route or termination of the
entire program may be necessary.
Government
Regulation
Progenics
and its product candidates are subject to comprehensive regulation by the FDA
and comparable authorities in other countries. Pharmaceutical regulation
currently is a topic of substantial interest in lawmaking and regulatory bodies
in the U.S. and internationally, and numerous proposals exist for changes in FDA
and non-U.S. regulation of pre-clinical and clinical testing, safety,
effectiveness, approval, manufacture, labeling, marketing, export, storage,
recordkeeping, advertising, promotion and other aspects of biologics, small
molecule drugs and medical devices, many of which, if adopted, could
significantly alter our business and the current regulatory structure described
below.
FDA Regulation.
FDA approval of our product candidates, including a review of the
manufacturing processes and facilities used to produce them, are required before
they may be marketed in the U.S. This process is costly, time consuming and
subject to unanticipated delays, and a drug candidate may fail to progress at
any point.
None of our product candidates other
than RELISTOR has received marketing approval from the FDA or any other
regulatory authority. The process required by the FDA before product candidates
may be approved for marketing in the U.S. generally involves:
·
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pre-clinical
laboratory and animal tests;
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·
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submission
to the FDA and effectiveness of an IND before clinical trials may
begin;
|
·
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adequate
and well-controlled human clinical trials to establish the safety and
efficacy of the product for its intended indication (animal and other
nonclinical studies also are typically conducted during each phase of
human clinical trials);
|
·
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submission
to the FDA of a marketing application;
and
|
·
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FDA
review of the marketing application in order to determine, among other
things, whether the product is safe and effective for its intended
uses.
|
Pre-clinical tests include
laboratory evaluation of product chemistry and animal studies to gain
preliminary information about a product’s pharmacology and toxicology and to
identify safety problems that would preclude testing in humans. Products must
generally be manufactured according to current Good Manufacturing Practices, and
pre-clinical safety tests must be conducted by laboratories that comply with FDA
good laboratory practices regulations.
Results
of pre-clinical tests are submitted to the FDA as part of an IND (Investigational New Drug)
application, which must become effective before clinical trials may commence.
The IND submission must include, among other things, a description of the
sponsor’s investigational plan; protocols for each planned study; chemistry,
manufacturing and control information; pharmacology and toxicology information
and a summary of previous human experience with the investigational
drug.
Unless
the FDA objects to, makes comments or raises questions concerning an IND, it
becomes effective 30 days following submission, and initial clinical studies may
begin. Companies often obtain affirmative FDA approval, however, before
beginning such studies. We cannot assure you that an IND submission by us will
result in FDA authorization to commence clinical trials.
Clinical trials involve the
administration of the investigational new drug to healthy volunteers or to
individuals under the supervision of a qualified principal investigator.
Clinical trials must be conducted in accordance with the FDA’s Good Clinical
Practice requirements under protocols submitted to the FDA that detail, among
other things, the objectives of the study, parameters used to monitor safety and
effectiveness criteria to be evaluated. Each clinical study must be conducted
under the auspices of an Institutional Review Board, which considers, among
other things, ethical factors, safety of human subjects, possible liability of
the institution and informed consent disclosure which must be made to
participants in the trial.
Clinical
trials are typically conducted in three sequential phases, which may overlap.
During phase 1, when the drug is initially administered to human subjects, the
product is tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion. Phase 2 involves studies in a limited population to
evaluate preliminarily the efficacy of the product for specific, targeted
indications, determine dosage tolerance and optimal dosage and identify possible
adverse effects and safety risks.
When a
product candidate is found in phase 2 evaluation to have an effect and an
acceptable safety profile, phase 3 trials are undertaken in order to further
evaluate clinical efficacy and test for safety within an expanded population.
Phase 2 results do not guarantee a similar outcome in phase 3 trials. The FDA
may suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
A New Drug Application, or NDA, is an application to the
FDA to market a new drug. A Biologic License Application,
or BLA, is an
application to market a biological product. The new drug or biological product
may not be marketed in the U.S. until the FDA has approved the NDA or issued a
biologic license. The NDA must contain, among other things, information on
chemistry, manufacturing and controls; non-clinical pharmacology and toxicology;
human pharmacokinetics and bioavailability; and clinical data. The BLA must
contain, among other things, data derived from nonclinical laboratory and
clinical studies which demonstrate that the product meets prescribed standards
of safety, purity and potency, and a full description of manufacturing methods.
Supplemental NDAs (sNDAs) are submitted to obtain regulatory approval for
additional indications for a previously approved drug.
The
results of the pre-clinical studies and clinical studies, the chemistry and
manufacturing data, and the proposed labeling, among other things, are submitted
to the FDA in the form of an NDA or BLA. The FDA may refuse to accept the
application for filing if certain administrative and content criteria are not
satisfied, and even after accepting the application for review, the FDA may
require additional testing or information before approval of the application.
Our analysis of the results of our clinical studies is subject to review and
interpretation by the FDA, which may differ from our analysis. We cannot assure
you that our data or our interpretation of data will be accepted by the FDA. In
any event, the FDA must deny an NDA or BLA if applicable regulatory requirements
are not ultimately satisfied. In addition, we may encounter delays or rejections
based upon changes in applicable law or FDA policy during the period of product
development and FDA regulatory review. If regulatory approval of a product is
granted, such approval may be made subject to various conditions, including
post-marketing testing and surveillance to monitor the safety of the product, or
may entail limitations on the indicated uses for which it may be marketed.
Finally, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial
marketing.
Both
before and after approval is obtained, a product, its manufacturer and the
sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the pre-clinical and clinical testing process, the approval
process, or thereafter, may result in various adverse consequences, including
FDA delay in approving or refusal to approve a product, withdrawal of an
approved product from the market or the imposition of criminal penalties against
the manufacturer or sponsor. Later discovery of previously unknown problems may
result in restrictions on the product, manufacturer or sponsor, including
withdrawal of the product from the market. New government requirements may be
established that could delay or prevent regulatory approval of our products
under development.
Regulation
Outside the U.S. Whether or not FDA approval has been obtained, approval
of a pharmaceutical product by comparable government regulatory authorities in
foreign countries must be obtained prior to marketing the product there. The
approval procedure varies from country to country, and the time required may be
longer or shorter than that required for FDA approval. The requirements we must
satisfy to obtain regulatory approval by governmental agencies in other
countries prior to commercialization of our products there can be rigorous,
costly and uncertain, and there can be no assurance that approvals will be
granted on a timely basis or at all. We do not currently have any facilities or
personnel outside of the U.S.
In the
European Union, Canada, Australia and Japan, regulatory requirements and
approval processes are similar in principle to those in the United States.
Regulatory approval in Japan requires that clinical trials of new drugs be
conducted in Japanese patients. Depending on the type of drug for which approval
is sought, there are currently two potential tracks for marketing approval in
the E.U. countries: mutual recognition and the centralized procedure. These
review mechanisms may ultimately lead to approval in all E.U. countries, but
each method grants all participating countries some decision-making authority in
product approval. The centralized procedure, which is mandatory for
biotechnology derived products, results in a recommendation in all member
states, while the E.U. mutual recognition process involves country-by-country
approval.
In other
countries, regulatory requirements may require additional pre-clinical or
clinical testing regardless of whether FDA approval has been obtained. This is
the case in Japan, where Ono is responsible for developing and commercializing
the subcutaneous form of RELISTOR and where trials are required to involve
patient populations which we and Wyeth have not examined in detail. If the
particular product is manufactured in the U.S., we must also comply with FDA and
other U.S. export provisions.
In most
countries outside the U.S., coverage, pricing and reimbursement approvals are
also required. There can be no assurance that the resulting pricing of our
products would be sufficient to generate an acceptable return to
us.
Other Regulation.
In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and various other present and potential future federal, state or
local regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although we believe that our safety procedures for storing, handling, using and
disposing of such materials comply with the standards prescribed by applicable
regulations, we cannot completely eliminate the risk of accidental
contaminations or injury from these materials. In the event of such an accident,
we could be held liable for any legal and regulatory violations as well as
damages that result. Any such liability could have a material adverse effect on
Progenics.
Manufacturing
Wyeth is
responsible for the supply of RELISTOR for clinical-trial and commercial
requirements under the Collaboration Agreement, and Ono has similar obligations
under the Ono License.
We have
contracted with a third-party contract manufacturing organization (CMO) to
produce PRO 140 for our ongoing clinical trials. We currently manufacture
clinical trial supplies of our PSMA monoclonal antibody in our biologics pilot
production facilities in Tarrytown, New York, utilizing two 150-liter
bioreactors, and have engaged CMOs for other portions of the PSMA-ADC
manufacturing process. We expect our manufacturing capacity will not be
sufficient for all of our late-stage clinical trials or commercial-scale
requirements. If we are unable to arrange for satisfactory CMO services, or
otherwise determine to acquire additional manufacturing capacity, we will need
to expand our manufacturing staff and facilities or obtain new facilities. In
order to establish a full-scale commercial manufacturing facility for any of our
product candidates, we would need to spend substantial additional funds, hire
and train significant numbers of employees and comply with the extensive FDA
regulations applicable to such a facility.
Sales
and Marketing
We plan
to market products for which we obtain regulatory approval through co-marketing,
co-promotion, licensing and distribution arrangements with third-party
collaborators. We may also consider contracting with a third-party professional
pharmaceutical detailing and sales organizations to perform promotional and/or
medical-scientific support functions for our products. Under the terms of our
Collaboration Agreement with Wyeth, Wyeth granted us an option to enter into a
co-promotion agreement to co-promote any of the RELISTOR products developed
under the Collaboration, subject to certain conditions. The extent of our
co-promotion activities and the fee that we will be paid by Wyeth for these
activities will be established if, as and when we exercise our option. Wyeth
will record all sales of products worldwide (including those sold by us, if any,
under a co-promotion agreement).
Competition
Competition
in the biopharmaceutical industry is intense and characterized by ongoing
research and development and technological change. We face competition from many
for-profit companies and major
universities and research institutions in the U.S. and abroad. We will
face competition from companies marketing existing products or developing new
products for diseases targeted by our technologies. Many of our competitors have
substantially greater resources, experience in conducting pre-clinical studies
and clinical trials and obtaining regulatory approvals for their products,
operating experience, research and development and marketing capabilities and
production capabilities than we do. Our products under development may not
compete successfully with existing products or products under development by
other companies, universities and other institutions. Our competitors may
succeed in obtaining FDA marketing approval for products more rapidly than we
do. Drug manufacturers that are first in the market with a therapeutic for a
specific indication generally obtain and maintain a significant competitive
advantage over later entrants. Accordingly, we believe that the speed with which
we develop products, complete the clinical trials and approval processes and
ultimately supply commercial quantities of the products to the market will be an
important competitive factor.
RELISTOR is the first
FDA-approved product for any indication involving OIC. We are, however, aware of
products in pre-clinical or clinical development that target the side effects of
opioid pain therapy. Nektar Therapeutics has completed a phase 2 study in
patients with OIC of an oral peripheral opioid antagonist. Sucampo
Pharmaceuticals, Inc., in collaboration with Takeda Pharmaceutical Company
Limited, is currently conducting phase 3 pivotal clinical trials of AMITIZA®
(lubiprostone) for the treatment of opioid-induced bowel dysfunction. In
addition, Adolor Corporation markets ENTEREG®
(alvimopan) for the treatment of post-operative ileus, and in Europe Mundipharma
International markets TARGIN®
(oxycodone/naloxone, a combination of an opioid and a systemic opioid
antagonist).
Five
classes of products have been approved for marketing by the FDA for the
treatment of HIV infection and
AIDS. These drugs have shown efficacy in reducing the concentration of
HIV in the blood and prolonging asymptomatic periods in HIV-positive
individuals. All have been required to show efficacy in conjunction with other
agents, which we have not demonstrated for PRO 140. We are aware of several
competitors that are marketing or developing small-molecule
viral-entry-inhibitor treatments directed against CCR5 for HIV infection,
including Pfizer’s SELZENTRY™ (maraviroc) tablets and Trimeris’ FUZEON®, but we
are unaware of any antibody-based viral-entry inhibitor treatments at PRO 140’s
stage of clinical development. We are also aware of various HCV drugs in
pre-clinical or clinical development.
HCV infection is most commonly
treated by a combination of interferon and ribavirin. Seroconversion and/or
sustained response to such therapies ranges from 30-50%. Tolerability and route
of administration for this therapy may compromise a patient’s ability to persist
with treatment for the 48-72 months sometimes required. We are aware of several
competitors who are developing small molecule HCV antivirals, including
viral-entry inhibition-based treatments.
Radiation
and surgery are two principal traditional forms of treatment for prostate cancer, to which our
PSMA-based development efforts are directed. If the disease spreads, hormone
(androgen) suppression therapy is often used to slow the cancer’s progression.
This form of treatment, however, can eventually become ineffective. We are aware
of several competitors who are developing alternative treatments for
castrate-resistant prostate cancer, some of which are directed against
PSMA.
A
significant amount of research in the biopharmaceutical field is also being
carried out at academic and
government institutions. An element of our research and development
strategy is to in-license technology and product candidates from academic and
government institutions. These institutions are becoming increasingly sensitive
to the commercial value of their findings and are becoming more aggressive in
pursuing patent protection and negotiating licensing arrangements to collect
royalties for use of technology that they have developed. These institutions may
also market competitive commercial products on their own or in collaboration
with competitors and will compete with us in recruiting highly qualified
scientific personnel. Any resulting increase in the cost or decrease in the
availability of technology or product candidates from these institutions may
adversely affect our business strategy.
Competition
with respect to our technologies and products is based on, among other things,
(i) product efficacy, safety, reliability, method of administration,
availability, price and clinical benefit relative to cost; (ii) timing and scope
of regulatory approval; (iii) sales, marketing and manufacturing capabilities;
(iv) collaborator capabilities; (v) insurance and other reimbursement coverage;
and (vi) patent protection.
Our
competitive position will also depend on our ability to attract and retain
qualified personnel, obtain patent protection or otherwise develop proprietary
products or processes, and secure sufficient capital resources for the typically
substantial period between technological conception and commercial
sales.
Product
Liability
The
testing, manufacturing and marketing of our product candidates and products
involves an inherent risk of product liability attributable to unwanted and
potentially serious health effects. To the extent we elect to test, manufacture
or market product candidates and products independently, we will bear the risk
of product liability directly. We have obtained product liability insurance
coverage in the amount of $10.0 million per occurrence, subject to a deductible
and a $10.0 million aggregate limitation. In addition, where the local statutory
requirements exceed the limits of our existing insurance or local policies of
insurance are required, we maintain additional clinical trial liability
insurance to meet these requirements. This insurance is subject to deductibles
and coverage limitations. We may not be able to continue to maintain insurance
at a reasonable cost, or in adequate amounts.
Human
Resources
At
December 31, 2008, we had 244 full-time employees, 37 of whom hold Ph.D.
degrees, 7 of whom hold M.D. degrees and two of whom, including Dr. Paul J.
Maddon, our Chief Executive Officer and Chief Science Officer, hold both Ph.D.
and M.D. degrees. At such date, 192 employees were engaged in research and
development, medical, regulatory affairs and manufacturing activities and 52
were engaged in finance, legal, administration and business development. We
consider our relations with our employees to be good. None of our employees is
covered by a collective bargaining agreement.
Our
business and operations entail a variety of serious risks and uncertainties,
including those described below.
Our
product development programs are inherently risky.
We are
subject to the risks of failure inherent in the development of product
candidates based on new technologies. We must complete successfully clinical
trials and obtain regulatory approvals for our product candidates as well as
additional formulations of and indications for RELISTOR. In the Japanese market,
we must rely on Ono to conduct successful clinical trials and obtain regulatory
approvals. Our other research and development programs, including those related
to PSMA and PRO 140, involve novel approaches to human therapeutics. There is
little precedent for the successful commercialization of products based on our
technologies, and there are a number of technological challenges that we must
overcome to complete most of our development efforts. We may not be able
successfully to develop further any of our products.
We
are dependent on Wyeth and Ono to develop and commercialize RELISTOR in their
respective areas, exposing us to significant risks, including that Wyeth’s
announced acquisition by Pfizer may adversely affect our
Collaboration.
We are
dependent upon Wyeth and Ono in their respective territories to perform and fund
development, including clinical testing of RELISTOR, make related regulatory
filings and manufacture and market products. Revenues from the sale of RELISTOR
depend almost entirely upon the efforts of Wyeth and, in Japan, Ono. Wyeth and
Ono have significant discretion in determining the efforts and resources they
apply to sales of the RELISTOR products in their territories and may not be
effective in marketing such products. Our business relationships with Wyeth and
Ono may not be scientifically, clinically or commercially
successful.
Wyeth is
a large, diversified pharmaceutical company with global operations and its own
corporate objectives, which may not be consistent with our best interests. In
addition, Wyeth and Pfizer have recently entered a definitive agreement under
which Pfizer is to acquire Wyeth. We cannot predict how a combined Pfizer and
Wyeth may view the utility and attractiveness of our Collaboration. As a result
of completion of this proposed acquisition or for other reasons, Wyeth or Pfizer
may change its strategic focus or pursue alternative technologies in a manner
that results in reduced or delayed revenues to us. We cannot predict whether a
combined Pfizer and Wyeth will determine to continue, seek to change or
terminate our Collaboration, or devote the same resources Wyeth currently
dedicates to it. If a combined Wyeth and Pfizer were to terminate the
Collaboration, we would no longer receive milestone and royalty payments and
would need to undertake development and commercialization of RELISTOR ourselves
or through another collaboration or licensing arrangement. We may not learn of
their plans for RELISTOR and our Collaboration unless and until the proposed
transaction closes.
If our
relationship with Wyeth or Ono terminates and we seek alternative arrangements
with one or more other parties to develop and commercialize RELISTOR, we may not
be able to enter into such an agreement with other suitable companies on
acceptable terms or at all. To continue to develop and commercialize RELISTOR on
our own, we would have to develop sales and marketing organization and a
distribution infrastructure, neither of which we currently have. Developing
these resources would be an expensive and lengthy process and would have a
material adverse effect on our financial resources and profitability. A
termination of our relationship with Wyeth could also seriously compromise the
development program for RELISTOR and possibly our other product candidates, as
we could experience significant delays and would have to assume full funding and
other responsibility for further development and eventual commercialization. Any
of these outcomes would result in delays in our ability to distribute RELISTOR
and would increase our expenses.
Our
relationships with Wyeth and Ono are multi-faceted and involve complex sharing
of control over decisions, responsibilities, costs and benefits. We have had and
may have future disagreements with them concerning product development,
marketing strategies, manufacturing and supply issues, and rights relating to
intellectual property. Both Wyeth and Ono have significantly greater financial
and managerial resources than we do, which either could draw upon in the event
of a dispute. Disagreements between either of them and us could lead to lengthy
and expensive litigation or other dispute-resolution proceedings as well as to
extensive financial and operational consequences to us, and have a material
adverse effect on our business, results of operations and financial
condition.
If
testing does not yield successful results, our products will not be
approved.
Regulatory
approvals are necessary before product candidates can be marketed. To obtain
them, we or our collaborators must demonstrate a product’s safety and efficacy
through extensive pre-clinical and clinical testing. Numerous adverse events may
arise during, or as a result of, the testing process, such as:
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·
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results
of pre-clinical studies being inconclusive or not indicative of results in
human clinical trials;
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·
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potential
products not having the desired efficacy or having undesirable side
effects or other characteristics that preclude marketing approval or limit
their commercial use if
approved;
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·
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after
reviewing test results, we or our collaborators may abandon projects which
we previously believed to be promising;
and
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·
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we,
our collaborators or regulators may suspend or terminate clinical trials
if we or they believe that the participating subjects are being exposed to
unacceptable health risks.
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Clinical
testing is very expensive and can take many years. Results attained in early
human clinical trials may not be indicative of results in later clinical trials.
In addition, many of our investigational or experimental drugs, such as PRO 140,
PRO 206 and the PSMA product candidates, are at an early stage of development,
and successful commercialization of early stage product candidates requires
significant research, development, testing and approvals by regulators, and
additional investment. Our products in the research or pre-clinical development
stage may not yield results that would permit or justify clinical testing. Our
failure to demonstrate adequately the safety and efficacy of a product under
development would delay or prevent marketing approval, which could adversely
affect our operating results and credibility.
A
setback in clinical development programs could adversely affect us.
We and
Wyeth continue to conduct clinical trials of RELISTOR. If the results of these
or future trials are not satisfactory, we encounter problems enrolling subjects,
clinical trial supply issues or other difficulties arise, or we experience
setbacks in developing drug formulations, including raw material-supply,
manufacturing or stability difficulties, our entire RELISTOR development program
could be adversely affected, resulting in delays in trials or regulatory filings
for further marketing approval. Conducting additional clinical trials or making
significant revisions to our clinical development plan would lead to delays in
regulatory filings. If clinical trials indicate a serious problem with the
safety or efficacy of a RELISTOR product, Wyeth may terminate the Collaboration
Agreement or stop development or commercialization of affected products. Since
RELISTOR is our only approved product, any setback of these types could have a
material adverse effect on our business, results of operations and financial
condition.
Ono must
conduct clinical trials with Japanese patients to obtain regulatory approval in
Japan. We have not tested RELISTOR in Japanese patients, and there can be no
assurance that clinical trials of RELISTOR in Japanese patients will yield
results adequate for regulatory approval in Japan.
We are
conducting or planning clinical trials of PRO 140, PSMA ADC and prostate cancer
vaccine candidates. If the results of our future clinical studies of PRO 140 or
PSMA ADC or the pre-clinical and clinical studies involving the PSMA vaccine and
antibody candidates are not satisfactory, we would need to reconfigure our
clinical trial programs to conduct additional trials or abandon the program
involved. Because our vaccine product candidates may be deemed to involve gene
therapy, a relatively new technology that has not been extensively tested in
humans, regulatory requirements applicable to them may be unclear, or subject to
substantial regulatory review that delays the development and approval process
generally.
We
have a history of operating losses, and we may never be profitable.
We have
incurred substantial losses since our inception. As of December 31, 2008, we had
an accumulated deficit of $298.7 million. We have derived no significant
revenues from product sales or royalties. We may not achieve significant product
sales or royalty revenue for a number of years, if ever. We expect to incur
additional operating losses in the future, which could increase significantly as
we expand our clinical trial programs and other product development
efforts.
Our
ability to achieve and sustain profitability is dependent in part on obtaining
regulatory approval for and then commercializing our products, either alone or
with others. We may not be able to develop and commercialize products beyond
subcutaneous RELISTOR. Our operations may not be profitable even if any of our
other products under development are commercialized.
We
are likely to need additional financing, but our access to capital funding is
uncertain.
As of
December 31, 2008, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $141.4 million. During the year ended
December 31, 2008, we had a net loss of $44.7 million and cash used in operating
activities was $28.3 million.
Although
our spending on RELISTOR has been significant during 2007 and 2008, our net
expenses for RELISTOR have been reimbursed by Wyeth under the Collaboration
Agreement. We expect our spending on RELISTOR will decline in 2009 and
thereafter, which will result in less reimbursement by Wyeth.
With
regard to other product candidates, we expect to continue to incur significant
development expenditures, and do not have committed external sources of funding
for most of these projects. These expenditures will be funded from cash on hand,
or we may seek additional external funding for them, most likely through
collaborative, license or royalty financing agreements with one or more
pharmaceutical companies, securities issuances or government grants or
contracts. We cannot predict when we will need additional funds, how much we
will need or if additional funds will be available, especially in light of
current conditions in global credit and financial markets. Our need for future
funding will depend on numerous factors, such as the availability of new product
development projects or other opportunities which we cannot predict, and many of
which are outside our control.
Our
access to capital funding is always uncertain. Recent turmoil in the
international capital markets has exacerbated this uncertainty. Despite previous
experience, we may not be able at the necessary time to obtain additional
funding on acceptable terms, or at all. Our inability to raise additional
capital on terms reasonably acceptable to us would seriously jeopardize the
future success of our business.
If we
raise funds by issuing and selling securities, it may be on terms that are not
favorable to existing stockholders. If we raise funds by selling equity
securities, current stockholders will be diluted, and new investors could have
rights superior to existing stockholders. Raising funds by selling debt
securities often entails significant restrictive covenants and repayment
obligations.
A
substantial portion of our cash and cash equivalents are guaranteed by the U.S.
Treasury or Federal Deposit Insurance Corporation’s guarantee programs. Our
marketable securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available for sale and are predominantly not guaranteed. These investments,
while rated investment grade by the Standard & Poor’s and Moody’s rating
agencies and predominantly having scheduled maturities in the first three
quarters of 2009, are heavily concentrated in the U.S. financial sector, which
continues to be under extreme stress.
As a
result of recent changes in general market conditions, we determined to reduce
the principal amount of auction rate securities in our portfolio as they came up
for auction and invest the proceeds in other securities in accordance with our
investment guidelines. Beginning in February 2008, auctions failed for certain
of our auction rate securities because sell orders exceeded buy orders. As a
result, at December 31, 2008, we continue to hold approximately $4.1 million of
auction rate securities which, in the event of auction failure, have been reset
according to the contractual terms in the governing instruments. To date, we
have received all scheduled interest payments on these securities. The principal
amount of these remaining auction rate securities will not be accessible until a
successful auction occurs, the issuer calls or restructures the underlying
security, the underlying security matures and is paid, or a buyer outside the
auction process emerges.
We monitor
markets for our investments, but cannot guarantee that additional losses will
not be required to be recorded. Valuation of securities is subject to
uncertainties that are difficult to predict, such as changes to credit ratings
of the securities and/or the underlying assets supporting them, default rates
applicable to the underlying assets, underlying collateral value, discount
rates, counterparty risk, ongoing strength and quality of market credit and
liquidity and general economic and market conditions.
Our
clinical trials could take longer than we expect.
Forecasts
we publicly announce of commencement and completion times for clinical trials
may not be accurate. For example, we have experienced delays in our RELISTOR
clinical development program in the past as a result of slower than anticipated
enrollment. These delays may recur. Delays can be caused by, among other
things:
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· deaths
or other adverse medical events involving subjects in our clinical
trials;
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· regulatory
or patent issues;
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· interim
or final results of ongoing clinical
trials;
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· failure
to enroll clinical sites as
expected;
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· competition
for enrollment from clinical trials conducted by others in similar
indications;
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· scheduling
conflicts with participating clinicians and clinical
institutions;
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· disagreements,
disputes or other matters arising from
collaborations;
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· our
inability to obtain additional funding when needed;
and
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· manufacturing
problems.
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We have
limited experience in conducting clinical trials, and we rely on others to
conduct, supervise or monitor some or all aspects of some of our clinical
trials. In addition, certain clinical trials for our product candidates may be
conducted by government-sponsored agencies, and consequently will be dependent
on governmental participation and funding. Under our agreement with Wyeth
relating to RELISTOR, Wyeth has the responsibility to conduct some of the
clinical trials for that product, including all trials outside of the United
States other than Japan, where Ono has the responsibility for clinical trials.
We have less control over the timing and other aspects of these clinical trials
than if we conducted them entirely on our own.
These
events may impair investors’ confidence in our ability to develop products and
our stock price may decline.
We
are subject to extensive regulation, which can be costly and time consuming and
can subject us to unanticipated fines and delays.
We and
our products are subject to comprehensive regulation by the FDA and comparable
authorities in other countries. These agencies and other entities regulate the
pre-clinical and clinical testing, safety, effectiveness, approval, manufacture,
labeling, marketing, export, storage, recordkeeping, advertising, promotion and
other aspects of our products. If we violate regulatory requirements at any
stage, whether before or after marketing approval is obtained, we may be subject
to forced removal of a product from the market, product seizure, civil and
criminal penalties and other adverse consequences. We cannot guarantee that
approvals of proposed products, processes or facilities will be granted on a
timely basis, or at all. If we experience delays or failures in obtaining
approvals, commercialization of our product candidates will be slowed or
stopped. Even if we obtain regulatory approval, the approval may include
significant limitations on indicated uses for which the product could be
marketed or other significant marketing restrictions.
Our
product candidates may not obtain regulatory approvals needed for marketing, and
may face challenges after approval.
None of
our product candidates other than RELISTOR has been approved by applicable
regulatory authorities for marketing. The process of obtaining FDA and foreign
regulatory approvals often takes many years and can vary substantially based
upon the type, complexity and novelty of the products involved. We have had only
limited experience in filing and pursuing applications and other submissions
necessary to gain marketing approvals. Products under development may never
obtain the marketing approval from the FDA or any other regulatory authority
necessary for commercialization.
Even if
our products receive regulatory approval:
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· they
might not obtain labeling claims necessary to make the product
commercially viable (in general, labeling claims define the medical
conditions for which a drug product may be marketed, and are
therefore very important to the commercial success of a product), or may
be required to carry “black box” or other warnings that adversely affect
their commercial success;
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· approval
may be limited to uses of the product for treatment or prevention of
diseases or conditions that are relatively less financially advantageous
to us than approval of greater or different scope, or subject to an
FDA-imposed Risk Evaluation and Mitigation Strategy (REMS) that limits the
sources from and conditions under which they may be
dispensed;
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· we
or our collaborators might be required to undertake post-marketing trials
to verify the product’s efficacy or
safety;
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· we,
our collaborators or others might identify side effects after the product
is on the market, or efficacy or safety concerns regarding marketed
products, whether or not originating from subsequent testing or other
activities by us, governmental regulators, other entities or organizations
or otherwise, and whether or not scientifically justified, may lead to
product recalls, withdrawals of marketing approval, reformulation of the
product, additional pre-clinical testing or clinical trials, changes in
labeling of the product, the need for additional marketing applications,
declining sales or other adverse
events;
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· we
or our collaborators might experience manufacturing problems, which could
have the same, similar or other consequences;
and
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· we
and our collaborators will be subject to ongoing FDA obligations and
continuous regulatory review.
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If
products fail to receive marketing approval or lose previously received
approvals, our financial results would be adversely affected.
Even
if our products obtain marketing approval, they might not be accepted in the
marketplace.
The
commercial success of our products will depend upon their acceptance by the
medical community and third party payors as clinically useful, cost effective
and safe. If health care providers believe that patients can be managed
adequately with alternative, currently available therapies, they may not
prescribe our products, especially if the alternative therapies are viewed as
more effective, as having a better safety or tolerability profile, as being more
convenient to the patient or health care providers or as being less expensive.
For pharmaceuticals administered in an institutional setting, the ability of the
institution to be adequately reimbursed could also play a significant role in
demand for our products. Even if our products obtain marketing approval, they
may not achieve market acceptance. If any of our products do not achieve market
acceptance, we will likely lose our entire investment in that
product.
Marketplace
acceptance will depend in part on competition in our industry, which is
intense.
The
extent to which any of our products achieves market acceptance will depend on
competitive factors. Competition in our industry is intense, and it is
accentuated by the rapid pace of technological development. There are products
currently in the market that will compete with the products that we are
developing, including AIDS drugs and chemotherapy drugs for treating cancer.
There are also products in pre-clinical or clinical development that target the
side effects of opioid pain therapy, and Adolor Corporation markets ENTEREG®
(alvimopan) for the treatment of post-operative ileus, which could compete with
RELISTOR. Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial and managerial resources than we do. These competitors may develop
products that are superior to those we are developing and render our products or
technologies non-competitive or obsolete. If our product candidates receive
marketing approval but cannot compete effectively in the marketplace, our
operating results and financial position would suffer. Competition with respect
to our technologies and products is based on, among other things, (i) product
efficacy, safety, reliability, method of administration, availability, price and
clinical benefit relative to cost; (ii) timing and scope of regulatory approval;
(iii) sales, marketing and manufacturing capabilities; (iv) collaborator
capabilities; (v) insurance and other reimbursement coverage; and (vi) patent
protection. Competitive disadvantages in any of these factors could materially
harm our business and financial condition.
Competing
products may adversely affect our products.
We are
aware that Adolor Corporation, in collaboration with GlaxoSmithKline, received
FDA approval in May 2008 for ENTEREG®
(alvimopan), an oral form of an opioid antagonist, for postoperative ileus, “to
accelerate the time to upper and lower gastrointestinal recovery following
partial large or small bowel resection surgery with primary anastomosis.” We are
also aware that Sucampo Pharmaceuticals, Inc., in collaboration with Takeda
Pharmaceutical Company Limited, is currently conducting phase 3 pivotal clinical
trials of AMITIZA®
(lubiprostone) for the treatment of opioid-induced bowel dysfunction, and that
Nektar Therapeutics has completed a phase 2 study of an oral once-a-day
peripheral opioid antagonist in patients with OIC. In Europe, we are aware that
Mundipharma International markets TARGIN®
(oxycodone/naloxone, a combination of an opioid and systemic opioid antagonist).
Any of these drugs may achieve a significant competitive advantage relative to
our product. In any event, the considerable marketing and sales capabilities of
GSK and Takeda may impair our ability to compete effectively in the
market.
In the
case of PRO 140, five classes of products have been approved for marketing by
the FDA for the treatment of HIV infection and AIDS. These drugs have shown
efficacy in reducing the concentration of HIV in the blood and prolonging
asymptomatic periods in HIV-positive individuals. All have been required to show
efficacy in conjunction with other agents, which we have not demonstrated for
PRO 140. We are aware of two approved drugs designed to treat HIV infection by
blocking viral entry (Trimeris’ FUZEON® and
Pfizer’s SELZENTRY™). We are also aware of various HCV drugs in pre-clinical or
clinical development.
If
we are unable to negotiate collaborative agreements, our cash burn rate could
increase and our rate of product development could decrease.
Our
business strategy includes entering into collaborations with pharmaceutical and
biotechnology companies to develop and commercialize product candidates and
technologies. We may not be successful in negotiating additional collaborative
arrangements. If we do not enter into new collaborative arrangements, we would
have to devote more of our resources to clinical product development and
product-launch activities, seeking additional sources of capital, and our cash
burn rate would increase or we would need to take steps to reduce our rate of
product development.
If
we do not achieve milestones or satisfy conditions regarding some of our product
candidates, we may not maintain our rights under related licenses.
We are
required to make substantial cash payments, achieve milestones and satisfy other
conditions, including filing for and obtaining marketing approvals and
introducing products, to maintain rights under our intellectual property
licenses. Due to the nature of these agreements and the uncertainties of
research and development, we may not be able to achieve milestones or satisfy
conditions to which we have contractually committed, and as a result may be
unable to maintain our rights under these licenses. If we do not comply with our
license agreements, the licensors may terminate them, which could result in our
losing our rights to, and therefore being unable to commercialize, related
products.
We
have limited manufacturing capabilities, which could adversely affect our
ability to commercialize products.
We have
limited manufacturing capabilities, which may result in increased costs of
production or delay product development or commercialization. In order to
commercialize our product candidates successfully, we or our collaborators must
be able to manufacture products in commercial quantities, in compliance with
regulatory requirements, at acceptable costs and in a timely manner. Manufacture
of our product candidates can be complex, difficult to accomplish even in small
quantities, difficult to scale-up for large-scale production and subject to
delays, inefficiencies and low yields of quality products. The cost of
manufacturing some of our products may make them prohibitively expensive. If
adequate supplies of any of our product candidates or related materials are not
available to us on a timely basis or at all, our clinical trials could be
seriously delayed, since these materials are time consuming to manufacture and
cannot be readily obtained from third-party sources.
We
operate pilot-scale manufacturing facilities for the production of vaccines and
recombinant proteins. These facilities will not be sufficient for late-stage
clinical trials for these types of product candidates or commercial-scale
manufacturing. We may be required to expand further our manufacturing staff and
facilities, obtain new facilities or contract with corporate collaborators or
other third parties to assist with production.
In the
event that we decide to establish a commercial-scale manufacturing facility, we
will require substantial additional funds and will be required to hire and train
significant numbers of employees and comply with applicable regulations, which
are extensive. We may not be able to build a manufacturing facility that both
meets regulatory requirements and is sufficient for our clinical trials or
commercial scale manufacturing.
We have
entered into arrangements with third parties for the manufacture of some of our
product candidates. Our third-party sourcing strategy may not result in a
cost-effective means for manufacturing products. In employing third-party
manufacturers, we do not control many aspects of the manufacturing process,
including compliance with the FDA’s current Good Manufacturing Practices and
other regulatory requirements. We may not be able to obtain adequate supplies
from third-party manufacturers in a timely fashion for development or
commercialization purposes, and commercial quantities of products may not be
available from contract manufacturers at acceptable costs.
We
are dependent on our patents and other intellectual property rights. The
validity, enforceability and commercial value of these rights are highly
uncertain.
Our
success is dependent in part upon obtaining, maintaining and enforcing patent
and other intellectual property rights. The patent position of biotechnology and
pharmaceutical firms is highly uncertain and involves many complex legal and
technical issues. There is no clear policy involving the breadth of claims
allowed, or the degree of protection afforded, under patents in this area.
Accordingly, patent applications owned by or licensed to us may not result in
patents being issued. We are aware of others who have patent applications or
patents containing claims similar to or overlapping those in our patents and
patent applications. We do not expect to know for several years the relative
strength or scope of our patent position. Patents that we own or license may not
enable us to preclude competitors from commercializing drugs, and consequently
may not provide us with any meaningful competitive advantage.
We own or
have licenses to several issued patents. The issuance of a patent, however, is
not conclusive as to its validity or enforceability, which can be challenged in
litigation. Our patents may be successfully challenged. We may incur substantial
costs in litigation seeking to uphold the validity of patents or to prevent
infringement. If the outcome of litigation is adverse to us, third parties may
be able to use our patented invention without payment to us. Third parties may
also avoid our patents through design innovation.
Most of
our product candidates, including RELISTOR, PRO 140 and our PSMA and HCV program
products, incorporate to some degree intellectual property licensed from third
parties. We can lose the right to patents and other intellectual property
licensed to us if the related license agreement is terminated due to a breach by
us or otherwise. Our ability, and that of our collaboration partners, to
commercialize products incorporating licensed intellectual property would be
impaired if the related license agreements were terminated.
The
license agreements from which we derive or out-license intellectual property
provide for various royalty, milestone and other payment, commercialization,
sublicensing, patent prosecution and enforcement, insurance, indemnification and
other obligations and rights, and are subject to certain reservations of rights.
While we generally have the right to defend and enforce patents licensed by us,
either in the first instance or if the licensor chooses not to do so, we must
usually bear the cost of doing so. Under the Wyeth Collaboration Agreement,
Wyeth has the right, at its expense, to defend and enforce the RELISTOR patents
licensed to Wyeth by us. With respect to Japan, Ono has certain limited rights
to prosecute, maintain and enforce relevant intellectual property. With most of
our in-licenses, the licensor bears the cost of engaging in all of these
activities, although we may share in those costs under specified
circumstances.
We also
rely on unpatented technology, trade secrets and confidential information. Third
parties may independently develop substantially equivalent information and
techniques or otherwise gain access to our technology or disclose our
technology, and we may be unable to effectively protect our rights in unpatented
technology, trade secrets and confidential information. We require each of our
employees, consultants and advisors to execute a confidentiality agreement at
the commencement of an employment or consulting relationship with us. These
agreements may, however, not provide effective protection in the event of
unauthorized use or disclosure of confidential information.
If
we infringe third-party patent or other intellectual property rights, we may
need to alter or terminate a product development program.
There may
be patent or other intellectual property rights belonging to others that require
us to alter our products, pay licensing fees or cease certain activities. If our
products infringe patent or other intellectual property rights of others, the
owners of those rights could bring legal actions against us claiming damages and
seeking to enjoin manufacturing and marketing of the affected products. If these
legal actions are successful, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to
manufacture or market the affected products. We may not prevail in any action
brought against us, and any license required under any rights that we infringe
may not be available on acceptable terms or at all. We are aware of intellectual
property rights held by third parties that relate to products or technologies we
are developing. For example, we are aware of other groups investigating
methylnaltrexone and other peripheral opioid antagonists, PSMA or related
compounds and CCR5 monoclonal antibodies and of patents held, and patent
applications filed, by these groups in those areas. While the validity of these
issued patents, patentability of these pending patent applications and
applicability of any of them to our programs are uncertain, if asserted against
us, any related patent or other intellectual property rights could adversely
affect our ability to commercialize our products.
The
research, development and commercialization of a biopharmaceutical often involve
alternative development and optimization routes, which are presented at various
stages in the development process. The preferred routes cannot be predicted at
the outset of a research and development program because they will depend on
subsequent discoveries and test results. There are numerous third-party patents
in our field, and we may need to obtain a license under a patent in order to
pursue the preferred development route of one or more of our products. The need
to obtain a license would decrease the ultimate profitability of the applicable
product. If we cannot negotiate a license, we might have to pursue a less
desirable development route or terminate the program altogether.
We
are dependent upon third parties for a variety of functions. These arrangements
may not provide us with the benefits we expect.
We rely
in part on third parties to perform a variety of functions. We are party to
numerous agreements which place substantial responsibility on clinical research
organizations, consultants and other service providers for the development of
our products. We also rely on medical and academic institutions to perform
aspects of our clinical trials of product candidates. In addition, an element of
our research and development strategy is to in-license technology and product
candidates from academic and government institutions in order to minimize
investments in early research. We have entered into agreements under which we
depend on Wyeth and Ono, respectively, for the commercialization and development
of RELISTOR. We may not be able to maintain these relationships or establish new
ones on beneficial terms. We may not be able to enter new arrangements without
undue delays or expenditures, and these arrangements may not allow us to compete
successfully.
We
lack sales and marketing infrastructure and related staff, which will require
significant investment to establish and in the meantime may make us dependent on
third parties for their expertise in this area.
We have
no established sales, marketing or distribution infrastructure. If we receive
marketing approval, significant investment, time and managerial resources will
be required to build the commercial infrastructure required to market, sell and
support a pharmaceutical product. Should we choose to commercialize any product
directly, we may not be successful in developing an effective commercial
infrastructure or in achieving sufficient market acceptance. Alternatively, we
may choose to market and sell our products through distribution, co-marketing,
co-promotion or licensing arrangements with third parties. We may also consider
contracting with a third party professional pharmaceutical detailing and sales
organization to perform the marketing function for our products. Under our
license and co-development agreement with Wyeth, Wyeth is responsible for
commercializing RELISTOR. To the extent that we enter into distribution,
co-marketing, co-promotion, detailing or licensing arrangements for the
marketing and sale of our other products, any revenues we receive will depend
primarily on the efforts of third parties. We will not control the amount and
timing of marketing resources these third parties devote to our
products.
If
we lose key management and scientific personnel on whom we depend, our business
could suffer.
We are
dependent upon our key management and scientific personnel. In particular, the
loss of Dr. Maddon could cause our management and operations to suffer. Our
employment agreement with Dr. Maddon is effective on a year-to-year basis,
subject to automatic renewal unless either party terminates. Employment
agreements do not assure the continued employment of an employee. We maintain
key-man life insurance on Dr. Maddon in the amount of $2.5 million.
Competition
for qualified employees among companies in the biopharmaceutical industry is
intense. Our future success depends upon our ability to attract, retain and
motivate highly skilled employees. In order to commercialize our products
successfully, we may be required to expand substantially our personnel,
particularly in the areas of manufacturing, clinical trials management,
regulatory affairs, business development and marketing. We may not be successful
in hiring or retaining qualified personnel.
If
we are unable to obtain sufficient quantities of the raw and bulk materials
needed to make our products, our product development and commercialization could
be slowed or stopped.
We
currently obtain supplies of critical raw materials used in production of our
product candidates from single sources. We do not have long-term contracts with
any of these other suppliers. Wyeth may not be able to fulfill its manufacturing
obligations for RELISTOR, either on its own or through third-party suppliers.
Our existing arrangements with suppliers for our other product candidates may
not result in the supply of sufficient quantities of our product candidates
needed to accomplish our clinical development programs, and we may not have the
right or capability to manufacture sufficient quantities of these products to
meet our needs if our suppliers are unable or unwilling to do so. Any delay or
disruption in the availability of raw materials would slow or stop product
development and commercialization of the relevant product.
A
substantial portion of our funding comes from federal government grants and
research contracts. We cannot rely on these grants or contracts as a continuing
source of funds.
A
substantial portion of our revenues to date, albeit decreasing in 2007 and 2008,
has been derived from federal government grants and research contracts. During
the years ended December 31, 2006, 2007 and 2008, we generated revenues from
awards made to us by the NIH between 2003 and 2008, to partially fund some of
our programs. We cannot rely on grants or additional contracts as a continuing
source of funds. Funds available under these grants and contracts must be
applied by us toward the research and development programs specified by the
government rather than for all our programs generally. The government’s
obligation to make payments under these grants and contracts is subject to
appropriation by the U.S. Congress for funding in each year. It is possible that
Congress or the government agencies that administer these government research
programs will decide to scale back these programs or terminate them due to their
own budgetary constraints. Additionally, these grants and research contracts are
subject to adjustment based upon the results of periodic audits performed on
behalf of the granting authority. Consequently, the government may not award
grants or research contracts to us in the future, and any amounts that we derive
from existing grants or contracts may be less than those received to date.
Therefore, we will need to provide funding on our own or obtain other
funding.
If
health care reform measures are enacted, our operating results and our ability
to commercialize products could be adversely affected.
In recent
years, there have been numerous proposals to change the health care system in
the U.S. and in foreign jurisdictions. Some of these proposals have included
measures that would change the nature of and regulatory requirements relating to
drug discovery, clinical testing and regulatory approvals, limit or eliminate
payments for medical procedures and treatments, or subject the pricing of
pharmaceuticals to government control. In some foreign countries, particularly
member states of the European Union, the pricing of prescription pharmaceuticals
is subject to governmental control. In addition, as a result of the trend
towards managed health care in the U.S., as well as legislative proposals to
reduce government insurance programs, third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement of new drug products. Consequently, significant uncertainty
exists as to the reimbursement status of newly approved health care
products.
If we or
any of our collaborators succeed in bringing one or more of our products to
market, third party payors may establish and maintain price levels insufficient
for us to realize an appropriate return on our investment in product
development. Significant changes in the health care system in the U.S. or
elsewhere, including changes resulting from adverse trends in third-party
reimbursement programs, could have a material adverse effect on our operating
results and our ability to raise capital and commercialize
products.
We
are exposed to product liability claims, and in the future we may not be able to
obtain insurance against these claims at a reasonable cost or at
all.
Our
business exposes us to product liability risks, which are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products. We may
not be able to avoid product liability exposure. If a product liability claim is
successfully brought against us, our financial position may be adversely
affected.
Product
liability insurance for the biopharmaceutical industry is generally expensive,
when available at all. We have obtained product liability insurance in the
amount of $10.0 million per occurrence, subject to a deductible and a $10.0
million annual aggregate limitation. Where local statutory requirements exceed
the limits of our existing insurance or where local policies of insurance are
required, we maintain additional clinical trial liability insurance to meet
these requirements. Our present insurance coverage may not be adequate to cover
claims brought against us. Some of our license and other agreements require us
to obtain product liability insurance. Adequate insurance coverage may not be
available to us at a reasonable cost in the future.
We
handle hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. If we are
involved in a hazardous waste spill or other accident, we could be liable for
damages, penalties or other forms of censure.
Our
research and development work and manufacturing processes involve the use of
hazardous, controlled and radioactive materials. We are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of these materials. Despite procedures that we implement
for handling and disposing of these materials, we cannot eliminate the risk of
accidental contamination or injury. In the event of a hazardous waste spill or
other accident, we could be liable for damages, penalties or other forms of
censure. We may be required to incur significant costs to comply with
environmental laws and regulations in the future.
Our
stock price has a history of volatility. You should consider an investment in
our stock as risky and invest only if you can withstand a significant
loss.
Our stock
price has a history of significant volatility. Between January 1, 2006 and
December 31, 2008, our stock price has ranged from $30.83 to $4.33 per share.
Between January 1, 2009 and March 6, 2009, it has ranged from $5.53 to $10.81
per share. Historically, our stock price has fluctuated through an even greater
range. At times, our stock price has been volatile even in the absence of
significant news or developments relating to us. The stock prices of
biotechnology companies and the stock market generally have been subject to
dramatic price swings in recent years, and current financial and market
conditions have resulted in widespread pressures on securities of issuers
throughout the world economy. Factors that may have a significant impact on the
market price of our common stock include:
|
· the
results of clinical trials and pre-clinical studies involving our products
or those of our competitors;
|
|
· changes
in the status of any of our drug development programs, including delays in
clinical trials or program
terminations;
|
|
· developments
regarding our efforts to achieve marketing approval for our
products;
|
|
· developments
in our relationships with Wyeth and Ono regarding the development and
commercialization of RELISTOR;
|
|
· announcements
of technological innovations or new commercial products by us, our
collaborators or our competitors;
|
|
· developments
in our relationships with other collaborative
partners;
|
|
· developments
in patent or other proprietary
rights;
|
|
· governmental
regulation;
|
|
· changes
in reimbursement policies or health care
legislation;
|
|
· public
concern as to the safety and efficacy of products developed by us, our
collaborators or our
competitors;
|
|
· our
ability to fund on-going
operations;
|
|
· fluctuations
in our operating results; and
|
|
· general
market conditions.
|
Purchases
of our common shares pursuant to our April 24, 2008 announcement of our $15.0
million share repurchase program may, depending on their timing, volume and
form, result in our stock price to be higher than it would be in the absence of
such purchases. If purchases under the program are not initiated or are
discontinued, our stock price may fall.
Our
principal stockholders are able to exert significant influence over matters
submitted to stockholders for approval.
At
December 31, 2008, our directors and executive officers and stockholders
affiliated with Tudor Investment Corporation together beneficially own or
control approximately one-fifth of our outstanding shares of common stock. At
that date, our five largest stockholders, excluding our directors and executive
officers and stockholders affiliated with Tudor, beneficially own or control in
the aggregate approximately half of our outstanding shares. Our directors and
executive officers and Tudor-related stockholders, should they choose to act
together, could exert significant influence in determining the outcome of
corporate actions requiring stockholder approval and otherwise control our
business. This control could have the effect of delaying or preventing a change
in control of us and, consequently, could adversely affect the market price of
our common stock. Other significant but unrelated stockholders could also exert
influence in such matters.
Anti-takeover
provisions may make the removal of our Board of Directors or management more
difficult and discourage hostile bids for control of our company that may be
beneficial to our stockholders.
Our Board
of Directors is authorized, without further stockholder action, to issue from
time to time shares of preferred stock in one or more designated series or
classes. The issuance of preferred stock, as well as provisions in certain of
our stock options that provide for acceleration of exercisability upon a change
of control, and Section 203 and other provisions of the Delaware General
Corporation Law could:
|
· make
the takeover of Progenics or the removal of our Board of Directors or
management more difficult;
|
|
· discourage
hostile bids for control of Progenics in which stockholders may receive a
premium for their shares of common stock;
and
|
|
· otherwise
dilute the rights of holders of our common stock and depress the market
price of our common stock.
|
If
there are substantial sales of our common stock, the market price of our common
stock could decline.
Sales of
substantial numbers of shares of common stock could cause a decline in the
market price of our stock. We require substantial external funding to finance
our research and development programs and may seek such funding through the
issuance and sale of our common stock. In addition, some of our other
stockholders are entitled to require us to register their shares of common stock
for offer or sale to the public, and we have filed Form S-8 registration
statements registering shares issuable pursuant to our equity compensation
plans. Any sales by existing stockholders or holders of options may have an
adverse effect on our ability to raise capital and may adversely affect the
market price of our common stock.
There
were no unresolved SEC staff comments regarding our periodic or current reports
under the Exchange Act as of December 31, 2008.
As of
December 31, 2008, we occupy in total approximately 145,900 square feet of
laboratory, manufacturing and office space on a single campus in Tarrytown, New
York, as follows:
Leased
Space
|
|
Area
(Square
Feet)
|
|
Termination
Date
|
|
Other
Terms
|
|
|
|
|
|
|
|
Sublease
1
|
|
91,700
|
|
December
30, 2009
|
|
|
Lease
1
|
|
32,600
|
|
December
31, 2009
|
|
Renewable
for two five-year terms
|
Sublease
2
|
|
5,900
|
|
June
29, 2012
|
|
Four
months rent-free beginning April 1, 2006; converts to Lease
2
|
Lease
2
|
|
|
|
December
31, 2014
|
|
|
Lease
3
|
|
9,200
|
|
June
29, 2012
|
|
Three
months rent-free beginning August 13, 2007; renewable for two five-year
terms; lease incentive of $276,300 provided by landlord
|
Lease
4
|
|
6,500
|
|
August
31, 2012
|
|
Renewable
for two terms co-terminous with Lease 1
|
Total
|
|
145,900
|
|
|
|
|
In
addition to rents due under these agreements, we are obligated to pay additional
facilities charges, including utilities, taxes and operating
expenses.
Item
3. Legal Proceedings
We are
not a party to any material legal proceedings.
Item
4. Submission of Matters to a Vote of Security
Holders
No
matters were submitted to a vote of stockholders during the fourth quarter of
2008.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Price
Range of Common Stock
Our
common stock is quoted on The NASDAQ Stock Market LLC under the symbol “PGNX.”
The following table sets forth, for the periods indicated, the high and low
sales price per share of the common stock, as reported on The NASDAQ Stock
Market LLC. Such prices reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
|
|
High
|
|
|
Low
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
First
quarter
|
|
$ |
30.31 |
|
|
$ |
22.02 |
|
Second
quarter
|
|
|
27.59 |
|
|
|
21.14 |
|
Third
quarter
|
|
|
26.10 |
|
|
|
20.55 |
|
Fourth
quarter
|
|
|
23.98 |
|
|
|
17.77 |
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
19.25 |
|
|
|
4.33 |
|
Second
quarter
|
|
|
17.94 |
|
|
|
6.66 |
|
Third
quarter
|
|
|
17.50 |
|
|
|
11.88 |
|
Fourth
quarter
|
|
|
14.10 |
|
|
|
6.77 |
|
On March
6, 2009, the last sale price for our common stock, as reported by The NASDAQ
Stock Market LLC, was $5.75. There were approximately 354 holders of record of our
common stock as of March 6, 2009.
Comparative
Stock Performance Graph
The graph below compares the cumulative stockholder return on our common stock
with the cumulative stockholder return of (i) the Nasdaq Stock Market (U.S.)
Index and (ii) the Nasdaq Pharmaceutical Index, assuming the investment in each
equaled $100 on December 31, 2003.
Dividends
We have
not paid any dividends since our inception and currently anticipate that all
earnings, if any, will be retained for development of our business and that no
dividends on our common stock will be declared in the foreseeable
future.
Share
Repurchase Program
During
2008, we repurchased 200,000 of our outstanding common shares; we did not
repurchase any during the fourth quarter (see Management’s Discussion and Analysis
of Financial Condition and Results of Operations –
Overview).
The
selected financial data presented below as of December 31, 2007 and 2008 and for
each of the three years in the period ended December 31, 2008 are derived from
our audited financial statements, included elsewhere herein. The selected
financial data presented below with respect to the balance sheet data as of
December 31, 2004, 2005 and 2006 and for each of the two years in the period
ended December 31, 2005 are derived from our audited financial statements not
included herein. The data set forth below should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and related Notes included elsewhere
herein.
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(in
thousands, except per share data)
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development from collaborator
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
58,415 |
|
|
$ |
65,455 |
|
|
$ |
59,885 |
|
Royalty
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
146 |
|
Research
and development from joint venture
|
|
|
2,008 |
|
|
|
988 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Research
grants and contracts
|
|
|
7,483 |
|
|
|
8,432 |
|
|
|
11,418 |
|
|
|
10,075 |
|
|
|
7,460 |
|
Other
revenues
|
|
|
85 |
|
|
|
66 |
|
|
|
73 |
|
|
|
116 |
|
|
|
180 |
|
Total
revenues
|
|
|
9,576 |
|
|
|
9,486 |
|
|
|
69,906 |
|
|
|
75,646 |
|
|
|
67,671 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
35,673 |
|
|
|
43,419 |
|
|
|
61,711 |
|
|
|
95,234 |
|
|
|
82,305 |
|
In-process
research and development
|
|
|
- |
|
|
|
- |
|
|
|
13,209 |
|
|
|
- |
|
|
|
- |
|
License
fees – research and development
|
|
|
390 |
|
|
|
20,418 |
|
|
|
390 |
|
|
|
942 |
|
|
|
2,830 |
|
General
and administrative
|
|
|
12,580 |
|
|
|
13,565 |
|
|
|
22,259 |
|
|
|
27,901 |
|
|
|
28,834 |
|
Loss
in joint venture
|
|
|
2,134 |
|
|
|
1,863 |
|
|
|
121 |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
1,566 |
|
|
|
1,748 |
|
|
|
1,535 |
|
|
|
3,027 |
|
|
|
4,609 |
|
Total
expenses
|
|
|
52,343 |
|
|
|
81,013 |
|
|
|
99,225 |
|
|
|
127,104 |
|
|
|
118,578 |
|
Operating
loss
|
|
|
(42,767 |
) |
|
|
(71,527 |
) |
|
|
(29,319 |
) |
|
|
(51,458 |
) |
|
|
(50,907 |
) |
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
780 |
|
|
|
2,299 |
|
|
|
7,701 |
|
|
|
7,770 |
|
|
|
6,235 |
|
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Loss
on sale of marketable securities
|
|
|
(31 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
other income
|
|
|
749 |
|
|
|
2,299 |
|
|
|
7,701 |
|
|
|
7,770 |
|
|
|
6,235 |
|
Net
loss before income taxes
|
|
|
(42,018 |
) |
|
|
(69,228 |
) |
|
|
(21,618 |
) |
|
|
(43,688 |
) |
|
|
(44,672 |
) |
Income
taxes
|
|
|
- |
|
|
|
(201 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss
|
|
$ |
(42,018 |
) |
|
$ |
(69,429 |
) |
|
$ |
(21,618 |
) |
|
$ |
(43,688 |
) |
|
$ |
(44,672 |
) |
Per
share amounts on net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(2.48 |
) |
|
$ |
(3.33 |
) |
|
$ |
(0.84 |
) |
|
$ |
(1.60 |
) |
|
$ |
(1.51 |
) |
|
|
December
31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and marketable
securities
|
|
$ |
31,207 |
|
|
$ |
173,090 |
|
|
$ |
149,100 |
|
|
$ |
170,370 |
|
|
$ |
141,374 |
|
Working
capital
|
|
|
25,667 |
|
|
|
137,101 |
|
|
|
91,827 |
|
|
|
102,979 |
|
|
|
85,983 |
|
Total
assets
|
|
|
39,545 |
|
|
|
184,003 |
|
|
|
165,911 |
|
|
|
189,539 |
|
|
|
157,833 |
|
Deferred
revenue, long-term
|
|
|
- |
|
|
|
- |
|
|
|
16,101 |
|
|
|
9,131 |
|
|
|
- |
|
Other
liabilities, long-term
|
|
|
42 |
|
|
|
49 |
|
|
|
123 |
|
|
|
359 |
|
|
|
266 |
|
Total
stockholders’ equity
|
|
|
31,838 |
|
|
|
112,732 |
|
|
|
110,846 |
|
|
|
147,499 |
|
|
|
119,369 |
|
Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
General.
We are a biopharmaceutical company focusing on the development and
commercialization of innovative therapeutic products to treat the unmet medical
needs of patients with debilitating conditions and life-threatening diseases.
Our principal programs are directed toward supportive care, virology and
oncology. We commenced principal operations in 1988, became publicly traded in
1997 and throughout have been engaged primarily in research and development
efforts, developing manufacturing capabilities, establishing corporate
collaborations and raising capital. We have only recently begun to derive
revenue from a commercial product. In order to commercialize the principal
products that we have under development, we have been and continue to address a
number of technological and clinical challenges and comply with comprehensive
U.S. and non-U.S. regulatory requirements. We expect to incur additional
operating losses in the future, which could increase significantly as we expand
our clinical trial programs and other product development efforts.
Our
sources of revenues through December 31, 2008 have been payments under our
current and former collaboration agreements, from PSMA LLC, from research grants
and contracts from the NIH related to our cancer and virology programs, from
interest income and royalties. Beginning in January 2006, we have been
recognizing revenues from Wyeth for reimbursement of our development expenses
for RELISTOR as incurred, for the $60.0 million upfront payment we received from
Wyeth over the period of our development obligations and for any milestones or
contingent events that are achieved during our collaboration with Wyeth. We have
not recognized revenue from PSMA LLC for the years ended December 31, 2006, 2007
or 2008, since during 2006, prior to our acquisition of our former partner’s
membership interest in PSMA LLC on April 20, 2006, the partners had not approved
a work plan and budget for 2006 and subsequently PSMA LLC has become our wholly
owned subsidiary. To date, our product sales have consisted solely of limited
revenues from the sale of research reagents. We expect that sales of research
reagents in the future will not significantly increase over current
levels.
A
majority of our expenditures to date have been for research and development
activities. During 2008, expenses for our HIV research program have increased
significantly over those in 2006 and 2007 while expenses for our RELISTOR and
cancer research programs declined compared to 2006 and 2007. We expect our
expenses for RELISTOR will decline in 2009 and thereafter, which will result in
less reimbursement revenues from Wyeth. We expect to incur significant
development expenses for our other programs as these programs progress. A
portion of these expenses is reimbursed through government
funding.
At
December 31, 2008, we had cash, cash equivalents and marketable securities
totaling $141.4 million. We expect that cash, cash equivalents and marketable
securities on hand at December 31, 2008 will be sufficient to fund operations at
current levels beyond one year. Cash used in operating
activities for the year ended December 31, 2008 was $28.3 million. We have
had recurring losses and had, at December 31, 2008, an accumulated deficit of
$298.7 million. During the year ended December 31, 2008, we had a net loss of
$44.7 million. Our most recent public offering of common stock occurred during
the year ended December 31, 2007, and we received net proceeds of $57.1 million.
Other than potential revenues from RELISTOR, which we expect to decline, we do
not anticipate generating significant recurring revenues, from royalties,
product sales or otherwise, in the near term, and we expect to incur significant
expenses. Consequently, we may require significant additional external funding
to continue our operations at their current levels in the future. Such funding
may be derived from additional collaboration or licensing agreements with
pharmaceutical or other companies or from the sale of our common stock or other
securities to investors or government funding, but may also not be available to
us on acceptable terms or at all.
Supportive Care.
Our first commercial product, RELISTOR®, was
approved by the FDA for sale in the United States in April 2008. Our
collaboration partner, Wyeth Pharmaceuticals, commenced sales of RELISTOR
subcutaneous injection in June, and we have begun earning royalties on
world-wide sales. Regulatory approvals have also been obtained in Canada, the
European Union, Australia and Venezuela, and marketing applications have been
approved or are pending or scheduled in other countries. In October, we
out-licensed to Ono Pharmaceutical Co., Ltd., Osaka, Japan, the rights to
subcutaneous RELISTOR in Japan. We continue development and clinical trials with
respect to other indications for RELISTOR.
In
January 2009, Wyeth and Pfizer Inc. announced a definitive agreement under which
Pfizer is to acquire Wyeth. We understand that the transaction is currently
expected to close in late 2009 and is subject to a variety of conditions. The
proposed acquisition of Wyeth by Pfizer does not trigger any change-of-control
provisions in our collaboration with Wyeth, and we believe that if the
acquisition occurs, the combined Pfizer/Wyeth organization will continue to have
the same rights and responsibilities under the Collaboration following the
acquisition as Wyeth had before. We cannot, however, predict how a combined
Pfizer and Wyeth may view the utility and attractiveness of our Collaboration.
As a result of completion of this proposed acquisition or for other reasons,
Wyeth or Pfizer may change its strategic focus or pursue alternative
technologies in a manner that results in reduced or delayed revenues to us. We
cannot predict whether a combined Pfizer and Wyeth will determine to continue,
seek to change or terminate our Collaboration, or devote the same resources
Wyeth currently dedicates to it. If a combined Wyeth and Pfizer were to
terminate the Collaboration, we would no longer receive milestone and royalty
payments and would need to undertake development and commercialization of
RELISTOR ourselves or through another collaboration or licensing arrangement. We
may not learn of their plans for RELISTOR and our Collaboration unless and until
the proposed transaction closes.
In 2008,
we earned $25.0 million in milestone payments from Wyeth for FDA and European
approvals of subcutaneous RELISTOR for the advanced illness setting, and in the
second quarter of 2008 began earning royalties on Wyeth’s sales of that product.
In April 2008, our Board of Directors approved a share repurchase program to
acquire up to $15.0 million of our outstanding common shares, funding for which
came from the $15.0 million milestone payment we received from Wyeth related to
U.S. marketing approval for RELISTOR. Purchases under the program were to be
made at our discretion subject to market conditions in the open-market or
otherwise, and in accordance with the regulations of the SEC, including Rule
10b-18. During 2008, we repurchased 200,000 of our outstanding common shares.
Purchases may be discontinued at any time. Reacquired shares will be held in
treasury until redeployed or retired. We have $12.3 million remaining available
for purchases under the program.
We and
Wyeth are also developing subcutaneous RELISTOR for treatment of OIC outside the
advanced illness setting, in individuals with chronic pain not related to
cancer, such as severe back pain that requires treatment with opioids (a phase 3
trial conducted by Wyeth), and in individuals rehabilitating from an orthopedic
surgical procedure in whom opioids are used to control post-operative pain (a
hypothesis generating phase 2 trial conducted by us). We are no longer enrolling
patients in this latter trial and are analyzing data from the treated
population. Based on positive results from the one-month blinded portion of the
phase 3 chronic pain study, we and Wyeth recently initiated and FDA-required
one-year, open-label safety study in chronic, non-cancer pain patients which is
intended to yield a consolidated safety database to enable filing an sNDA, which
is now planned for submission by the end of 2010 for treatment of OIC in the
chronic, non-cancer pain population.
We and
Wyeth also have had in development an intravenous formulation of RELISTOR for
the management of POI, a temporary impairment of the gastrointestinal
tract function. Results from two phase 3 clinical trials of this formulation
showed that treatment did not achieve primary or secondary end points. Recent
results from a third phase 3 trial evaluating an intravenous formulation of
RELISTOR in patients following abdominal hernia repair have confirmed these
earlier findings.
Wyeth is
leading development of an oral formulation of RELISTOR for the treatment of OIC
in patients with chronic, non-cancer pain. We and Wyeth are evaluating
information from optimization studies of a formulation of this product candidate
to determine the next stages of development.
Development
and commercialization of RELISTOR is being conducted under the Wyeth
Collaboration Agreement. Under that agreement, we (i) have received an upfront
payment from Wyeth, (ii) have received and are entitled to receive further
additional payments as certain developmental milestones for RELISTOR are
achieved, (iii) have been and are entitled to be reimbursed by Wyeth for
expenses we incur in connection with the development of RELISTOR under an
agreed-upon development plan and budget, and (iv) have received and are entitled
to receive royalties and commercialization milestone payments. These payments
will depend on continued success in development and commercialization of
RELISTOR, which are in turn dependent on the actions of Wyeth and the FDA and
other regulatory bodies, as well as the outcome of clinical and other testing of
RELISTOR. Many of these matters are outside our control. Manufacturing and
commercialization expenses for RELISTOR are funded by Wyeth. Wyeth has elected,
as it was entitled to do under the Collaboration Agreement, not to develop
RELISTOR in Japan, and as provided in that Collaboration Agreement returned to
us the rights to RELISTOR in Japan. As discussed below, we have out-licensed the
rights to subcutaneous RELISTOR in Japan which we reacquired from Wyeth as a
result of its election.
At
inception of the Wyeth collaboration, Wyeth paid to us a $60.0 million
non-refundable upfront payment. Wyeth has made $39.0 million in milestone
payments since that time and is obligated to make up to $295.0 million in
additional payments to us upon the achievement of milestones and contingent
events in the development and commercialization of RELISTOR, taking into account
the Ono transaction discussed below. Costs for the development of RELISTOR
incurred by Wyeth or us starting January 1, 2006 are paid by Wyeth. We are being
reimbursed for our out-of-pocket development costs by Wyeth and receive
reimbursement for our efforts based on the number of our full-time equivalent
employees devoted to the development project, all subject to Wyeth’s audit
rights and possible reconciliation as provided in the Agreement. During the
applicable royalty periods, Wyeth is obligated to pay to us royalties on the net
sales of RELISTOR by Wyeth throughout the world other than Japan, where we have
licensed the rights to subcutaneous RELISTOR to Ono.
In
January 2006, we began recognizing revenue from Wyeth for reimbursement of our
development expenses for RELISTOR as incurred during each quarter under the
development plan agreed to by us and Wyeth. We also began recognizing revenue
for a portion of the $60.0 million upfront payment we received from Wyeth, based
on the proportion of the expected total effort for us to complete our
development obligations, as reflected in the most recent development plan and
budget approved by us and Wyeth, that was actually performed during that
quarter. Starting June 2008, we began recognizing royalty income based on the
net sales of RELISTOR, as defined, by Wyeth.
In
October 2008, we entered into an exclusive License Agreement with Ono under
which we licensed to Ono the rights to subcutaneous RELISTOR in Japan. Under
that agreement, in November 2008 we received from Ono an upfront payment of
$15.0 million, and are entitled to receive potential development milestones of
up to $20.0 million, commercial milestones and royalties on sales by Ono of
subcutaneous RELISTOR in Japan. These payments will depend on continued success
in development and commercialization of RELISTOR, which are in turn dependent on
the actions of Wyeth, Ono, the FDA, Japanese pharmaceutical regulatory
authorities and other regulatory bodies, as well as the outcome of clinical and
other testing of RELISTOR. Many of these matters are outside our control. Ono
also has the option to acquire from us the rights to develop and commercialize
in Japan other formulations of RELISTOR, including intravenous and oral forms,
on terms to be negotiated separately. Supervision of and consultation with
respect to Ono’s development and commercialization responsibilities will be
carried out by joint committees consisting of members from both Ono and us. Ono
may request us to perform activities related to its development and
commercialization responsibilities beyond our participation in these committees
and specified technology transfer related tasks which will be at its expense,
and payable to us for the services it requests, at the time we perform services
for them.
As a
result of the return of the Japanese rights, we will not receive from Wyeth,
milestone payments related to the development of RELISTOR formulations in Japan.
These potential future milestone payments would have totaled $22.5 million (of
which $7.5 million related to the subcutaneous formulation of RELISTOR and the
remainder to the intravenous and oral formulations). Taking these adjustments
into account, we now have the potential to receive a total of $334.0 million in
development and commercialization milestone payments from Wyeth under the Wyeth
Collaboration (of which $60.0 million relate to the intravenous formulation of
RELISTOR), and of which $39.0 million ($5.0 million relating to the intravenous
formulation) have been paid to date.
Virology.
In the area of virology, we are developing two viral-entry inhibitors: a
humanized monoclonal antibody, PRO 140, for treatment of HIV, the virus that
causes AIDS, and a proprietary orally-available small-molecule drug candidate,
designated PRO 206, for treatment of HCV infection. We have recently selected
for further clinical development the subcutaneous form of PRO 140 for treatment
of HIV infection, which has the potential for convenient, weekly
self-administration, and we are conducting preclinical development activities in
preparation for filing an IND application for PRO 206. We are also engaged in
research regarding a prophylactic vaccine against HIV infection.
Oncology.
In the area of prostate cancer, we are conducting a phase 1 clinical
trial of a fully human monoclonal ADC directed against PSMA, a protein found at
high levels on the surface of prostate cancer cells and also on the
neovasculature of a number of other types of solid tumors. We are also
developing therapeutic vaccines designed to stimulate an immune response to
PSMA.
Results
of Operations (amounts in thousands)
Revenues:
Our
sources of revenue during the years ended December 31, 2008, 2007 and 2006,
included our Collaboration with Wyeth, which was effective on January 1, 2006,
our research grants and contract from the NIH and, to a small extent, our sale
of research reagents. In June 2008, we began recognizing royalty income from net
sales by Wyeth of subcutaneous RELISTOR.
Sources
of Revenue
|
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
Research
from collaborator
|
|
$59,885
|
|
$65,455
|
|
$58,415
|
|
(9%)
|
|
12%
|
Royalty
income
|
|
146
|
|
-
|
|
-
|
|
N/A
|
|
N/A
|
Research
grants and contract
|
|
7,460
|
|
10,075
|
|
11,418
|
|
(26%)
|
|
(12%)
|
Other
revenues
|
|
180
|
|
116
|
|
73
|
|
55%
|
|
59%
|
|
|
$67,671
|
|
$75,646
|
|
$69,906
|
|
(11%)
|
|
8%
|
2008
vs. 2007
Research
revenue from
collaborator relates
to our Collaboration with Wyeth. From the inception of the Wyeth Collaboration
through December 31, 2008 we recognized as revenue: (i) in October 2006, $5,000
milestone payment in connection with the initiation of the first phase 3
clinical trial of intravenous RELISTOR, (ii) in May 2007, $9,000, representing
two milestone payments, related to the acceptance for review of applications
submitted for marketing approval of a subcutaneous formulation of RELISTOR in
the U.S and European Union, (iii) in April 2008, $15,000 milestone payment
related to the FDA approval of subcutaneous RELISTOR and (iv) in July 2008,
$10,000 milestone payment related to the European approval of subcutaneous
formulation of RELISTOR. We have analyzed the facts and circumstances of the
five milestones achieved since inception of the Wyeth Collaboration through
December 31, 2008, and believe that they met those criteria for revenue
recognition upon achievement of the respective milestones. See Critical Accounting Policies –
Revenue Recognition.
During
the years ended December 31, 2008 and 2007, we recognized $59,885 and $65,455,
respectively, of revenue from Wyeth, consisting of (i) $10,228 and $16,378,
respectively, of the $60,000 upfront payment we received upon entering into our
Collaboration in December 2005, (ii) $24,657 and $40,077, respectively, as
reimbursement of our development expenses, and (iii) $25,000 and $9,000,
respectively, of non-refundable payments earned upon the achievement of
milestones defined in the Wyeth Collaboration.
From the
inception of the Wyeth Collaboration through December 31, 2008, we recognized
$45,437 of revenue from the $60,000 upfront payment, $99,318 as reimbursement
for our development costs, and a total of $39,000 for non-refundable milestone
payments.
We
recognize a portion of the upfront payment in a reporting period in accordance
with the proportionate performance method, which is based on the percentage of
actual effort performed on our development obligations in that period relative
to total effort expected for all of our performance obligations under the
arrangement, as reflected in the most recent development plan and budget
approved by Wyeth and us. During the third quarter of 2007, a revised budget was
approved, which extended our performance period to the end of 2009 and, thereby,
decreased the amount of revenue we are recognizing in each reporting period. As
a result, the amount of revenue recognized from the upfront payment during the
year ended December 31, 2008 declined by $6,150 as compared to
2007.
As of
December 31, 2008, relative to the $15.0 million upfront payment from Ono, we
have recorded $15.0 million as deferred revenue – current, which we expect to
recognize as revenue during the first quarter of 2009, upon satisfaction of our
performance obligations.
Royalty income. We began
earning royalties from net sales by Wyeth of subcutaneous RELISTOR in June 2008.
During the year
ended December 31, 2008, we earned royalties of $665, based on the net sales of
RELISTOR and we recognized $146 of royalty income. As of December 31,
2008, we have recorded a cumulative total of $519 as deferred revenue – current.
The $519 of deferred royalty revenue is expected to be recognized as royalty
income over the period of our development obligations relating to RELISTOR,
which we currently estimate will be in 2009. Our royalties from net
sales by Wyeth of RELISTOR, as defined, are based on royalty rates under our
Collaboration. These rates can range up to 30% of U.S. and 25% of foreign net
sales at the highest sales levels. Royalty rates will increase on incremental
sales as net sales in a calendar year exceed specified
levels.
Research
grants and contract.
In 2003, we were awarded a contract (NIH Contract) by the NIH to develop
a prophylactic vaccine (ProVax) designed to prevent HIV from becoming
established in uninfected individuals exposed to the virus. Funding under the
NIH Contract provides for pre-clinical research, development and early clinical
testing. These funds are being used principally in connection with our ProVax
HIV vaccine program. The NIH Contract originally provided for up to $28,562 in
funding to us, subject to annual funding approvals and compliance with its
terms, over five years. The total of our approved award under the NIH Contract
through December 2008 amounted to $15,509. Funding under this contract includes
the payment of an aggregate of $1,617 in fees, subject to achievement of
specified milestones. Through December 31, 2008, we had recognized revenue of
$15,509 from this contract, including $180 for the achievement of two
milestones. We were informed by the NIH that it has decided to fund the NIH
Contract only through December 2008. We have applied for continued funding for
this program and are funding it with our own resources pending a decision on
that application.
Revenues
from research grants and contract from the NIH decreased to $7,460 for the year
ended December 31, 2008 from $10,075 for the year ended December 31, 2007;
$5,251 and $6,185 from grants and $2,209 and $3,890 from the NIH Contract for
the years ended December 31, 2008 and 2007, respectively. The decrease in grant
and contract revenue resulted from fewer reimbursable expenses in 2008 than in
2007 on new and continuing grant related projects, and decreased activity under
the NIH Contract.
Other
revenues, primarily from increased orders for research reagents,
increased to $180 for the year ended December 31, 2008 from $116 for the year
ended December 31, 2007.
2007
vs. 2006
Research revenues from collaborator. During the years ended
December 31, 2007 and 2006, we recognized $65,455 and $58,415, respectively, of
revenue from Wyeth, consisting of (i) $16,378 and $18,831, respectively, of the
$60,000 upfront payment we received upon entering into our Collaboration in
December 2005, (ii) $40,077 and $34,584, respectively, as reimbursement of our
development expenses, and (iii) $9,000 and $5,000, respectively, of
non-refundable payments earned upon the achievement of milestones defined in the
Wyeth Collaboration Agreement.
Research
grants and contract.
Revenues from research grants and contract from the NIH decreased to
$10,075 for the year ended December 31, 2007 from $11,418 for the year ended
December 31, 2006; $6,185 and $8,052 from grants and $3,890 and $3,366 from the
NIH Contract for the years ended December 31, 2007 and 2006, respectively. The
decrease in grant revenue resulted from completion of certain grants in 2006 and
fewer reimbursable expenses in 2007 than in 2006 on new and continuing grant
related projects. In addition, there was increased activity under the NIH
Contract.
Other
revenues, primarily from higher orders for research reagents increased to
$116 for the year ended December 31, 2007 from $73 for the year ended December
31, 2006. We received more orders for research reagents during
2007.
Expenses:
Research and Development Expenses
include scientific labor, supplies, facility costs, clinical trial costs,
product manufacturing costs, royalty payments and license fees. Research and
development expenses, including in-process research and development, license
fees and royalty expense, decreased to $85,135 for the year ended December 31,
2008 from $96,176 for the year ended December 31, 2007, and increased from
$75,310 in the year ended December 31, 2006. Research and development expenses
for 2006 include a one-time charge of $13,209 related to our purchase of a
former member’s equity interest in PSMA LLC (see Business – Oncology – PSMA).
During 2008, the decrease in research and development expenses over those in
2007 and 2006, net of the one-time charges in 2006, was primarily due to a
decrease in activity related to the PSMA clinical program, and, to a lesser
extent, net activity related to our HCV research and pre-clinical programs,
partially offset by an increase in the PRO 140 program. Expenses for RELISTOR in
2008 were also lower than in 2007 and 2006, due to enrollment delays in the
phase 2 trial for subcutaneous RELISTOR and conclusion of the phase 3 trial for
intravenous RELISTOR. See Liquidity and Capital Resources –
Uses of Cash, for details of the changes in these expenses by project.
Beginning in 2006, Wyeth is reimbursing us for development expenses we incur
related to RELISTOR under the development plan agreed to between Wyeth and us. A
portion of our expenses related to our HIV, HCV and PSMA programs is funded
through grants and a contract from the NIH (see Revenues- Research Grants and
Contract). The changes in
research and development expense, by category of expense, are as
follows:
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Salaries
and benefits (cash)
|
$24,383
|
|
$24,061
|
|
$17,013
|
|
1%
|
|
41%
|
2008 vs.
2007 Company-wide compensation increased due to an
increase in average headcount to 196 from 190 for the years ended December 31,
2008 and 2007, respectively, in the research and development, manufacturing and
clinical departments.
2007 vs. 2006 Company-wide
compensation increased due to an increase in average headcount to 190 from 134
for the years ended December 31, 2007 and 2006, respectively, in the research
and development, manufacturing and clinical departments.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
Percent
change
|
Share-based
compensation (non-cash)
|
$7,241
|
|
$7,104
|
|
$5,814
|
|
2%
|
|
22%
|
|
2008 vs.
2007 Increase due to increase in average headcount,
increase in employee stock purchase plan expenses and additional grants made
during the year ended December 31, 2008, partially offset by lower compensation
expense due to fully vested awards and an increase in the directors and officers
forfeiture rate.
2007 vs.
2006 Increase due to increase in headcount and changes
in the fair value of our common stock.
See Critical Accounting Policies −
Share-Based Payment Arrangements.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Clinical
trial costs
|
$14,127
|
|
$19,225
|
|
$9,485
|
|
(27%)
|
|
103%
|
2008 vs.
2007 Decrease primarily related to RELISTOR ($6,686),
due to reduced clinical trial activities in 2008 and remaining costs for
termination of GMK study in 2007 ($1,534). These decreases were partially offset
by an increase in HIV ($3,122) due to increased PRO 140 clinical trial
activities in 2008.
2007 vs.
2006 Increase primarily related to RELISTOR ($10,901)
due to the global pivotal phase 3 clinical trial of the intravenous formulation
of RELISTOR which began in the fourth quarter of 2006 and Other projects ($2).
The increases were partially offset by decreases in Cancer ($778), due to
termination of the GMK study in the second quarter of 2007, and HIV-related
costs ($385), resulting from a decline in clinical site payments and other
clinical expenses related to the phase 1b clinical trial of PRO 140 for which
enrollment and dosing of subjects was complete by December 2006. During 2007,
data from that trial was analyzed.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Laboratory
supplies
|
$3,944
|
|
$5,196
|
|
$5,522
|
|
(24%)
|
|
(6%)
|
2008 vs. 2007
Decrease in HIV ($808), due to purchase of less drug supplies in 2008 compared
to 2007, Cancer ($235), due to fewer expenses for PSMA and GMK and Other
projects ($209).
2007 vs.
2006 Increase in HIV-related costs ($1,134), due to
internal manufacture of drug materials for the phase 2 PRO 140 clinical trial,
and in Other projects ($615), primarily Hepatitis C virus research costs. The
increases were partially offset by a decrease in RELISTOR ($1,564) due to the
purchase of more RELISTOR drug in the 2006 period than in the 2007 period, and
Cancer ($511) due to a decrease in basic research costs in 2007 for Cancer
(primarily PSMA).
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Contract
manufacturing and subcontractors
|
$21,681
|
|
$26,051
|
|
$12,448
|
|
(17%)
|
|
109%
|
2008 vs.
2007 Decrease in Cancer ($5,401), primarily due to
contract manufacturing expenses for PSMA in 2007 but not in 2008, and RELISTOR
($2,301), partially offset by increases in HIV ($3,052) due to manufacturing
expenses for PRO 140 in 2008 but not in 2007 and Other ($280). These expenses
are related to the conduct of clinical trials, including manufacture by third
parties of drug materials, testing, analysis, formulation and toxicology
services, and vary as the timing and level of such services are
required.
2007 vs.
2006 Increase in HIV ($8,228), Cancer ($5,274) and Other
projects ($1,791), which was partially offset by a decrease in RELISTOR ($1,690)
related to clinical trials under our Collaboration with Wyeth. These expenses
are related to the conduct of clinical trials, including manufacture by third
parties of drug materials, testing, analysis, formulation and toxicology
services, and vary as the timing and level of such services are
required.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Consultants
|
$3,514
|
|
$4,722
|
|
$5,286
|
|
(26%)
|
|
(11%)
|
2008
vs. 2007 Decrease in
RELISTOR ($1,579) and Other projects ($174), partially offset by increases in
HIV ($294) and Cancer ($251). These expenses are related to the monitoring of
clinical trials as well as the analysis of data from completed clinical trials
and vary as the timing and level of such services are
required.
2007 vs.
2006 Decrease in
RELISTOR ($1,351) partially offset by increases in HIV ($350), Cancer
($107) and Other projects ($330). These expenses are related to the monitoring
of clinical trials as well as the analysis of data from completed clinical
trials and vary as the timing and level of such services are
required.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
License
fees
|
$2,830
|
|
$942
|
|
$390
|
|
200%
|
|
142%
|
2008 vs.
2007 Increase primarily due to HIV ($1,100), RELISTOR
($522) and Cancer ($266) expenses in 2008 but not in 2007.
2007 vs.
2006 Increase primarily related to our HIV program
($30), Cancer ($412) related to PSMA license agreements and RELISTOR ($110),
related to payments to the University of Chicago.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Royalty
expense
|
$15
|
|
$-
|
|
$-
|
|
N/A
|
|
N/A
|
We
incurred $67 of royalty costs and recognized $15 of royalty expenses during the
year ended December 31, 2008. As of December 31, 2008, we recorded a cumulative
total of $52 of deferred royalty costs from the royalty costs incurred in the
last three quarters of 2008. The $52 of deferred royalty costs are expected to
be recognized as royalty expense over the period of our development obligations
relating to RELISTOR.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Other
operating expenses
|
$7,400
|
|
$8,875
|
|
$19,352
|
|
(17%)
|
|
(54%)
|
2008 vs.
2007 Decrease primarily in computer expenses ($1,760),
insurance ($294), facilities ($186) and travel ($102), partially offset by an
increase in other operating expenses ($21) and rent ($846).
2007 vs.
2006 Decrease primarily due to expenses in 2006 related
to our purchase of a former member’s equity interest in PSMA LLC, which are
included in in-process research and development ($13,209) and travel ($21),
partially offset by an increase in rent ($579), facilities costs ($202),
insurance costs ($128), other operating expenses ($172) and increased computer
software costs in 2007 ($1,672), related to the preparation for submission of a
NDA in March 2007.
General and Administrative Expenses
increased to $28,834 in the year ended December 31, 2008 from $27,901 in
the year ended December 31, 2007 and from $22,259 in the year ended December 31,
2006, as follows:
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Salaries
and benefits (cash)
|
$8,610
|
|
$7,243
|
|
$5,942
|
|
19%
|
|
22%
|
2008
vs. 2007 Increase due to compensation increases and an
increase in average headcount to 52 from 43 in the general and administrative
departments for the years ended December 31, 2008 and 2007,
respectively.
2007 vs. 2006 Increase
due to compensation increases and an increase in average headcount to 43 from 32
in the general and administrative departments for the years ended December 31,
2007 and 2006, respectively, including the hiring of our Vice President,
Commercial Development and Operations in January 2007.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Share-based
compensation (non-cash)
|
$6,892
|
|
$8,202
|
|
$6,840
|
|
(16%)
|
|
20%
|
2008 vs.
2007 Decrease due to compensation awards becoming fully
vested and an increase in directors and officers forfeiture rate, partially
offset by greater employee stock purchase plan expenses and issuance of new
grants.
2007 vs.
2006 Increase due to increase in headcount and changes
in the fair value of our common stock.
See Critical Accounting Policies
−Share-Based Payment Arrangements.
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Consulting
and professional fees
|
$7,838
|
|
$6,481
|
|
$4,891
|
|
21%
|
|
33%
|
2008
vs. 2007 Increase due primarily to increases in
consultants ($1,135), legal and patent fees ($132) and other miscellaneous costs
($158), which were partially offset by a decrease in audit and tax fees
($68).
2007
vs. 2006 Increase due primarily to increases in
consultants ($632), legal and patent fees ($1,138) and other miscellaneous costs
($15), which were partially offset by a decrease in audit and tax fees
($195).
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Other
operating expenses
|
$5,494
|
|
$5,975
|
|
$4,586
|
|
(8)%
|
|
30%
|
2008
vs. 2007 Decrease in recruiting ($452), facilities
($142), investor relations ($74), taxes ($27) and other operating expenses
($55), partially offset by increases in rent ($269).
2007
vs. 2006 Increase in computer supplies and software
($219), rent ($184), recruiting ($125), travel ($69), utilities and facilities
costs ($466), investor relations ($176) and other operating expenses ($290),
partially offset by decreases in insurance ($101) and corporate sales and
franchise taxes ($39).
Loss
in Joint Venture:
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Loss
in Joint Venture
|
$-
|
|
$-
|
|
$121
|
|
N/A
|
|
(100%)
|
2007
vs. 2006 Loss in joint venture decreased to
$0 for the year ended December 31, 2007 from $121 for the year ended
December 31, 2006. On April 20, 2006, PSMA LLC became our wholly owned
subsidiary and, accordingly, we did not recognize loss in joint venture from the
date of acquisition.
Depreciation
and Amortization:
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Depreciation
and amortization
|
$4,609
|
|
$3,027
|
|
$1,535
|
|
52%
|
|
97%
|
2008
vs. 2007 Depreciation expense increased to $4,609 for
the year ended December 31, 2008 from $3,027 for the year ended December 31,
2007, due to increased amortization of leasehold improvements. Approximately
$3.8 million of leasehold improvements was placed in service during 2007, which
is being amortized through the end of the lease term of December 31,
2009.
2007
vs. 2006 Depreciation expense increased to $3,027 for
the year ended December 31, 2007 from $1,535 for the year ended December 31,
2006. We purchased capital assets and made leasehold improvements in both years
to increase our research and manufacturing capacity. During 2007, $5.8 million
of machinery and equipment and leasehold improvements that had been included in
construction in progress at December 31, 2006, representing about 28% of the
December 31, 2006 balance of fixed assets, were placed in operation and
depreciated.
Other
Income:
|
2008
|
|
2007
|
|
2006
|
|
2008
vs. 2007
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
Percent
change
|
Other
income
|
$6,235
|
|
$7,770
|
|
$7,701
|
|
(20)%
|
|
1%
|
2008
vs. 2007 Interest income decreased to $6,235 for the
year ended December 31, 2008 from $7,770 for the year ended December 31, 2007.
Interest income, as reported, is primarily the result of investment income from
our marketable securities, decreased by the amortization of premiums we paid or
increased by the amortization of discounts we received for those marketable
securities. For the years ended December 31, 2008 and 2007, investment income
decreased to $7,195 from $7,325, respectively, due to a decrease in interest
rates and lower average balance of cash equivalents and marketable securities in
2008 than in 2007. Amortization of premiums, net of discounts, was ($960) and
$445 for the years ended December 31, 2008 and 2007, respectively.
2007
vs. 2006 Interest income increased to $7,770 for the
year ended December 31, 2007 from $7,701 for the year ended December 31, 2006.
Interest income, as reported, is primarily the result of investment income from
our marketable securities, decreased by the amortization of premiums we paid or
increased by the amortization of discounts we received for those marketable
securities. For the years ended December 31, 2007 and 2006, investment income
decreased to $7,325 from $7,710, respectively, due to a lower average balance of
cash equivalents and marketable securities in 2007 than in 2006. Amortization of
premiums, net of discounts, was $445 and $9 for the years ended December 31,
2007 and 2006, respectively.
Income
Taxes:
For the
years ended December 31, 2008, 2007 and 2006, we had losses both for book and
tax purposes.
Net
Loss:
Our net
loss was $44,672 for the year ended December 31, 2008, $43,688 for the year
ended December 31, 2007 and $21,618 for the year ended December 31,
2006.
Liquidity
and Capital Resources
We have
to date generated only modest amounts of product and royalty revenue, and
consequently have relied principally on external funding and our Collaboration
with Wyeth to finance our operations. We have funded our operations since
inception primarily through private placements of equity securities, payments
received under collaboration agreements, public offerings of common stock,
funding under government research grants and contracts, interest on investments,
proceeds from the exercise of outstanding options and warrants and sale of our
common stock under our two employee stock purchase plans (Purchase Plans). At
December 31, 2008, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $141.4 million compared with $170.4
million at December 31, 2007. We expect that our existing cash, cash equivalents
and marketable securities at December 31, 2008 are sufficient to fund current
operations beyond one year. Our cash flow from operating activities was negative
for the years ended December 31, 2008, 2007 and 2006 due primarily to the excess
of expenditures on our research and development programs and general and
administrative costs related to those programs over cash received from
collaborators and government grants and contracts to fund such programs, as
described below.
Sources
of Cash
Operating
Activities. Our Collaboration with Wyeth provided us with a $60.0 million
upfront payment in December 2005. In addition, since January 2006, Wyeth has
been reimbursing us for development expenses we incur related to RELISTOR under
the development plan agreed to between us, which is currently expected to
continue through 2009. For the years ended December 31, 2008 and 2007, we
received $24.7 million and $40.1 million, respectively, of such reimbursement.
Since inception of the Wyeth Collaboration, Wyeth has made $39.0 million in
milestone payments to us upon the achievement of certain events. In May 2007, we
earned $9.0 million, representing two milestone payments, related to the
acceptance for review of applications submitted for marketing approval of a
subcutaneous formulation of RELISTOR for the treatment of OIC in patients
receiving palliative care in the U.S. and the European Union. Approval of the
U.S. application in April 2008 resulted in our earning a $15.0 million milestone
payment, which was recognized in the second quarter of 2008. In July 2008, we
earned $10.0 million milestone payment for the European approval of subcutaneous
RELISTOR. Wyeth has also submitted applications for the marketing of RELISTOR in
Canada and Australia, which were approved in March 2008 and November 2008,
respectively. In October 2006, we earned a $5.0 million milestone payment in
connection with the start of a phase 3 clinical trial of intravenous RELISTOR
for the treatment of POI. Wyeth is obligated to make up to $295 million in
additional payments to us upon the achievement of milestones and other
contingent events in the development and commercialization of RELISTOR. Wyeth is
also responsible for all commercialization activities related to RELISTOR
products, other than that to be conducted by Ono. We are entitled to receive
royalty payments from Wyeth as the product is sold in the various countries
(other than Japan) where marketing approval has been obtained. We are also
entitled to receive royalty payments upon the sale of all other products
developed under the Wyeth Collaboration Agreement.
Under our
License Agreement with Ono, we received from Ono an upfront payment of $15.0
million, and are entitled to receive potential development milestone payments of
up to $20.0 million, commercial milestones and royalties on sales of
subcutaneous RELISTOR in Japan. Ono is also responsible for development and
commercialization costs for subcutaneous RELISTOR in Japan. As of December 31, 2008,
relative to the $15.0 million upfront payment from Ono, we have recorded $15.0
million as deferred revenue – current, which we expect to recognize as revenue
during the first quarter of 2009, upon satisfaction of our performance
obligations.
The
funding by Wyeth and Ono of development costs for RELISTOR generally enhances
our ability to devote current and future resources to other research and
development programs. We may also enter into other collaboration agreements,
license or sale transactions or royalty sales or financings with respect to our
products and product candidates. We cannot forecast with any degree of
certainty, however, which products or indications, if any, will be subject to
future arrangements, or how they would affect our capital requirements. The
consummation of other agreements would further allow us to advance other
projects with current funds.
In 2003,
we were awarded a contract by the NIH to develop a prophylactic vaccine designed
to prevent HIV from becoming established in uninfected individuals exposed to
the virus. Funding under the NIH Contract provided for pre-clinical research,
development and early clinical testing. These funds are being used principally
in connection with our ProVax HIV vaccine program. The NIH Contract originally
provided for up to $28.6 million in funding to us, subject to annual funding
approvals and compliance with its terms, over five years. The total of our
approved award under the NIH Contract through December 2008 is $15.5 million.
Funding under this contract includes the payment of an aggregate of $1.6 million
in fees, subject to achievement of specified milestones. Through December 31,
2008, we had recognized revenue of $15.5 million from this contract, including
$0.2 million for the achievement of two milestones. We were informed by the NIH
that it has decided to fund this contract only through December 2008. We have
applied for continued funding for this program and are funding it with our own
resources pending a decision on that application.
A
substantial portion of our revenues to date has been derived from federal
government grants and research contracts. During the years ended December 31,
2006, 2007 and 2008, we generated revenues from awards made to us by the NIH
between 2003 and 2008, to partially fund some of our programs. For the years
ended December 31, 2008, 2007 and 2006, we recognized $5.3 million, $6.2 million
and $8.1 million, respectively, of revenue from all of our NIH
grants.
Changes
in Accounts receivable and Accounts payable for the years ended December 31,
2008, 2007 and 2006 resulted from the timing of receipts from the NIH and Wyeth,
and payments made to trade vendors in the normal course of
business.
Other
than amounts to be received from Wyeth, Ono and from currently approved grants,
we have no committed external sources of capital. Other than revenues from
RELISTOR, we expect no significant product revenues for a number of years, as it
will take at least that much time, if ever, to bring our product candidates to
the commercial marketing stage.
Investing
Activities. We purchase and sell marketable securities in order to
provide funding for operations. Our marketable securities, which include
corporate debt securities, securities of government-sponsored entities and
auction rate securities, are classified as available-for-sale.
A
substantial portion of our cash and cash equivalents are guaranteed by the U.S.
Treasury or Federal Deposit Insurance Corporation’s guarantee programs. Our
marketable securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available for sale and are predominantly not guaranteed. These investments,
while rated investment grade by the Standard & Poor’s and Moody’s rating
agencies and predominantly having scheduled maturities in the first three
quarters of 2009, are heavily concentrated in the U.S. financial sector, which
continues to be under extreme stress.
As a
result of recent changes in general market conditions, we determined to reduce
the principal amount of auction rate securities in our portfolio as they came up
for auction and invest the proceeds in other securities in accordance with our
investment guidelines. Beginning in February 2008, auctions failed for certain
of our auction rate securities because sell orders exceeded buy orders. As a
result, at December 31, 2008, we continue to hold approximately $4.1 million of
auction rate securities which, in the event of auction failure, are reset
according to the contractual terms in the governing instruments. To date, we
have received all scheduled interest payments on these securities. The principal
amount of these remaining auction rate securities will not be accessible until a
successful auction occurs, the issuer calls or restructures the underlying
security, the underlying security matures and is paid, or a buyer outside the
auction process emerges.
We monitor
markets for our investments, but cannot guarantee that additional losses will
not be required to be recorded. Valuation of securities is subject to
uncertainties that are difficult to predict, such as changes to credit ratings
of the securities and/or the underlying assets supporting them, default rates
applicable to the underlying assets, underlying collateral value, discount
rates, counterparty risk, ongoing strength and quality of market credit and
liquidity and general economic and market conditions. We do not believe the
carrying values of our investments are other than temporarily impaired and
therefore expect the positions will eventually be liquidated without significant
loss.
Our
marketable securities are purchased and, in the case of auction rate securities,
sold by third-party brokers in accordance with our investment policy guidelines.
Our brokerage account requires that all marketable securities be held to
maturity unless authorization is obtained from us to sell earlier. In fact, we
have a history of holding all marketable securities to maturity. We, therefore,
consider that we have the intent and ability to hold any securities with
unrealized losses until a recovery of fair value (which may be maturity), and we
do not consider these marketable securities to be other than temporarily
impaired at December 31, 2008.
Financing
Activities. During the years ended December 31, 2008, 2007 and 2006, we
received cash of $6.5 million, $7.8 million and $7.1 million, respectively, from
the exercise of stock options by employees, directors and non-employee
consultants, from the sale of our common stock under our Purchase Plans and from
sale of common stock in public offering in 2007. The amount of cash we receive
from these sources fluctuates commensurate with headcount levels and changes in
the price of our common stock on the grant date for options exercised, and on
the sale date for shares sold under the Purchase Plans.
In 2007,
we completed a public offering of 2.6 million shares of our common stock,
pursuant to a shelf registration statement that had been filed with the SEC in
2006, which had registered 4.0 million shares of our common stock; that
registration statement has now expired. We received proceeds of $57.3 million,
or $22.04 per share, which was net of underwriting discounts and commissions of
approximately $2.9 million, and paid approximately $0.2 million in other
offering expenses.
In the
past year, we obtained approvals from the FDA, as well as European Union,
Canadian, Australian, Venezuelan and other regulatory authorities, for our first
commercial product, RELISTOR. We continue development and clinical trials with
respect to RELISTOR and our other product candidates. Unless we obtain
regulatory approval from the FDA for additional product candidates and/or enter
into agreements with corporate collaborators with respect to the development of
our technologies in addition to that for RELISTOR, we will be required to fund
our operations for periods in the future, by seeking additional financing
through future offerings of equity or debt securities or funding from additional
grants and government contracts. Adequate additional funding may not be
available to us on acceptable terms or at all. Our inability to raise additional
capital on terms reasonably acceptable to us would seriously jeopardize the
future success of our business.
Uses
of Cash
Operating
Activities. The
majority of our cash has been used to advance our research and development
programs. We currently have major research and development programs
investigating supportive care, virology and oncology, and are conducting several
smaller research projects in the areas of virology and oncology. Our total
expenses for research and development from inception through December 31, 2008
have been approximately $478.5 million. For various reasons, many of which are
outside of our control, including the early stage of certain of our programs,
the timing and results of our clinical trials and our dependence in certain
instances on third parties, we cannot estimate the total remaining costs to be
incurred and timing to complete our research and development programs. Under our
Collaboration with Wyeth, we are able to estimate that those remaining costs for
the subcutaneous and intravenous formulations of RELISTOR, based upon the
development plan and budget approved by us and Wyeth, which may be subject to
further revision, are $15.8 million, over the period from January 1, 2009 to
December 31, 2009.
For the
years ended December 31, 2008, 2007 and 2006, research and development costs
incurred, by project, were as follows. Expenses for Cancer for 2006 include
$13.2 million related to our purchase of a former member’s interest in the PSMA
joint venture,
(see Business – Oncology –
Prostate Cancer – PSMA, above for more
details):
|
|
For
the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
RELISTOR
|
|
$ |
25.4 |
|
|
$ |
41.5 |
|
|
$ |
32.1 |
|
HIV
|
|
|
39.4 |
|
|
|
29.0 |
|
|
|
15.8 |
|
Cancer
|
|
|
10.8 |
|
|
|
16.1 |
|
|
|
23.2 |
|
Other
programs
|
|
|
9.5 |
|
|
|
9.6 |
|
|
|
4.2 |
|
Total
|
|
$ |
85.1 |
|
|
$ |
96.2 |
|
|
$ |
75.3 |
|
We may
require additional funding to continue our research and product development
programs, conduct pre-clinical studies and clinical trials, fund operating
expenses, pursue regulatory approvals for our product candidates, file and
prosecute patent applications and enforce or defend patent claims, if any, and
fund product in-licensing and any possible acquisitions. Manufacturing and
commercialization expenses for RELISTOR are funded by Wyeth in the U.S. and
outside the U.S. except for Japan, where development, manufacturing and
commercialization expenses are required to be funded by Ono. However, if we
exercise our option to co-promote RELISTOR products in the U.S., which must be
approved by Wyeth, we will be required to establish and fund a sales force,
which we currently do not have. If we commercialize any other product candidate
other than with a collaborator, we would also require additional funding to
establish manufacturing and marketing capabilities.
Our
purchase of rights from our methylnaltrexone licensors in December 2005 has
extinguished our cash payments that would have been due to those licensors in
the future upon the achievement of certain events, including sales of RELISTOR
products. We continue, however, to be responsible to make payments (including
royalties) to the University of Chicago upon the occurrence of certain
events.
Costs
incurred by PSMA LLC from January 1, 2006 to April 20, 2006 were funded from
PSMA LLC’s cash reserves. We are continuing to conduct the PSMA research and
development projects on our own subsequent to our acquisition of PSMA LLC, on
April 20, 2006, and are required to fund the entire amount of such efforts,
thus, increasing our cash expenditures. We are funding PSMA-related research and
development efforts from our internally-generated cash flows. We are also
continuing to receive funding from the NIH for a portion of our PSMA-related
research and development costs.
Investing
Activities. During
the years ended December 31, 2008, 2007 and 2006, we have spent $2.2 million,
$5.2 million and $8.8 million, respectively, on capital expenditures. Those
expenditures have been related to the expansion of our office, laboratory and
manufacturing facilities and the purchase of more laboratory equipment for
our ongoing and future research and development projects, including the
purchase of a second 150-liter bioreactor in February 2007 for the manufacture
of research and clinical products.
Contractual
Obligations
Our
funding requirements, both for the next 12 months and beyond, will include
required payments under operating leases and licensing and collaboration
agreements. The following table summarizes our contractual obligations as of
December 31, 2008 for future payments under these agreements:
|
|
|
|
|
Payments
due by December 31,
|
|
|
|
Total
|
|
|
2009
|
|
|
|
2010-2011
|
|
|
|
2012-2013
|
|
|
Thereafter
|
|
|
|
(in
millions)
|
|
Operating
leases
|
|
$ |
5.0 |
|
|
$ |
3.2 |
|
|
$ |
1.0 |
|
|
$ |
0.6 |
|
|
$ |
0.2 |
|
License
and collaboration agreements (1)
|
|
|
82.5 |
|
|
|
2.1 |
|
|
|
4.8 |
|
|
|
12.7 |
|
|
|
62.9 |
|
Total
|
|
$ |
87.5 |
|
|
$ |
5.3 |
|
|
$ |
5.8 |
|
|
$ |
13.3 |
|
|
$ |
63.1 |
|
_______________
(1)
|
Assumes
attainment of milestones covered under each agreement, including those by
PSMA LLC. The timing of the achievement of the related milestones is
highly uncertain, and accordingly the actual timing of payments, if any,
is likely to vary, perhaps significantly, relative to the timing
contemplated by this table.
|
We
periodically assess the scientific progress and merits of each of our programs
to determine if continued research and development is economically viable.
Certain of our programs have been terminated due to the lack of scientific
progress and prospects for ultimate commercialization. Because of the
uncertainties associated with research and development in these programs, the
duration and completion costs of our research and development projects are
difficult to estimate and are subject to considerable variation. Our inability
to complete research and development projects in a timely manner or failure to
enter into collaborative agreements could significantly increase capital
requirements and adversely affect our liquidity.
Our cash
requirements may vary materially from those now planned because of results of
research and development and product testing, changes in existing relationships
or new relationships with licensees, licensors or other collaborators, changes
in the focus and direction of our research and development programs, competitive
and technological advances, the cost of filing, prosecuting, defending and
enforcing patent claims, the regulatory approval process, manufacturing and
marketing and other costs associated with the commercialization of products
following receipt of regulatory approvals and other factors.
The above
discussion contains forward-looking statements based on our current operating
plan and the assumptions on which it relies. There could be deviations from that
plan that would consume our assets earlier than planned.
Off-Balance
Sheet Arrangements and Guarantees
We have
no off-balance sheet arrangements and do not guarantee the obligations of any
other unconsolidated entity.
Critical
Accounting Policies
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America. Our significant accounting
policies are disclosed in Note 2 to our financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2008. The selection
and application of these accounting principles and methods requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. On an ongoing basis, we evaluate our estimates. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. The results of our evaluation
form the basis for making judgments about the carrying values of assets and
liabilities that are not otherwise readily apparent. While we believe that the
estimates and assumptions we use in preparing the financial statements are
appropriate, these estimates and assumptions are subject to a number of factors
and uncertainties regarding their ultimate outcome and, therefore, actual
results could differ from these estimates.
We have
identified our critical accounting policies and estimates below. These are
policies and estimates that we believe are the most important in portraying our
financial condition and results of operations, and that require our most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
have discussed the development, selection and disclosure of these critical
accounting policies and estimates with the Audit Committee of our Board of
Directors.
Revenue
Recognition. We
recognize revenue from all sources based on the provisions of the SEC’s Staff
Accounting Bulletin (SAB) No. 104 (SAB 104), Emerging Issues Task Force (EITF)
Issue No. 00-21 (EITF 00-21) “Accounting for Revenue Arrangements with Multiple
Deliverables” and EITF Issue No. 99-19 (EITF 99-19) “Reporting Revenue Gross as
a Principal Versus Net as an Agent.” Our license and co-development agreement
with Wyeth includes a non-refundable upfront license fee, reimbursement of
development costs, research and development payments based upon our achievement
of clinical development milestones, contingent payments based upon the
achievement by Wyeth of defined events and royalties on product sales. We began
recognizing research revenue from Wyeth on January 1, 2006. During the years
ended December 31, 2008, 2007 and 2006, we also recognized revenue from
government research grants and contract, which are used to subsidize a portion
of certain of our research projects (Projects), exclusively from the NIH.
We also recognized revenue from the sale of research reagents during those
periods.
Non-refundable
upfront license fees are recognized as revenue when we have a contractual right
to receive such payment, the contract price is fixed or determinable, the
collection of the resulting receivable is reasonably assured and we have no
further performance obligations under the license agreement. Multiple element
arrangements, such as license and development arrangements are analyzed to
determine whether the deliverables, which often include a license and
performance obligations, such as research and steering or other committee
services, can be separated in accordance with EITF 00-21. We would recognize
upfront license payments as revenue upon delivery of the license only if the
license had standalone value and the fair value of the undelivered performance
obligations, typically including research or steering or other committee
services, could be determined. If the fair value of the undelivered performance
obligations could be determined, such obligations would then be accounted for
separately as performed. If the license is considered to either (i) not have
standalone value, or (ii) have standalone value but the fair value of any of the
undelivered performance obligations could not be determined, the upfront license
payments would be recognized as revenue over the estimated period of when our
performance obligations are performed.
We must
determine the period over which our performance obligations will be performed
and revenue related to upfront license payments will be recognized. Revenue will
be recognized using either a proportionate performance or straight-line method.
We recognize revenue using the proportionate performance method provided that we
can reasonably estimate the level of effort required to complete our performance
obligations under an arrangement and such performance obligations are provided
on a best-efforts basis. Direct labor hours or full-time equivalents will
typically be used as the measure of performance. Under the proportionate
performance method, revenue related to upfront license payments is recognized in
any period as the percent of actual effort expended in that period relative to
total effort for all of our performance obligations under the arrangement. We
are recognizing revenue related to the upfront license payment we received from
Wyeth using the proportionate performance method since we can reasonably
estimate the level of effort required to complete our performance obligations
under the Wyeth Collaboration based upon the most current budget approved by
both Wyeth and us. Such performance obligations are provided by us on a
best-efforts basis. Full-time equivalents are being used as the measure of
performance. Significant judgment is required in determining the nature and
assignment of tasks to be accomplished by each of the parties and the level of
effort required for us to complete our performance obligations under the
arrangement. The nature and assignment of tasks to be performed by each party
involves the preparation, discussion and approval by the parties of a
development plan and budget. Since we have no obligation to develop the
subcutaneous and intravenous formulations of RELISTOR outside the U.S. or the
oral formulation at all and have no significant commercialization obligations
for any product, recognition of revenue for the upfront payment is not required
during those periods, if they extend beyond the period of our development
obligations.
During
the course of a collaboration agreement, e.g., the Wyeth
Collaboration, that involves a development plan and budget, the amount of the
upfront license payment that is recognized as revenue in any period will
increase or decrease as the percentage of actual effort increases or decreases,
as described above. When a new budget is approved, the remaining unrecognized
amount of the upfront license fee will be recognized prospectively, using the
methodology described above and applying any changes in the total estimated
effort or period of development that is specified in the revised approved
budget. The amounts of the upfront license payment that we recognized as revenue
for each fiscal quarter prior to the third quarter of 2007 were based upon
several revised approved budgets, although the revisions to those budgets did
not materially affect the amounts of revenue recognized in those periods. During
the third quarter of 2007, the estimate of our total remaining effort to
complete our development obligations was increased significantly based upon a
revised development budget approved by both us and Wyeth. As a result, the
period over which our obligations will extend, and over which the upfront
payment will be amortized, was extended from the end of 2008 to the end of 2009.
Consequently, the amount of revenue recognized from the upfront payment in the
year ended December 31, 2008 declined relative to that in the comparable period
of 2007. Due to the significant judgments involved in determining the level of
effort required under an arrangement and the period over which we expect to
complete our performance obligations under the arrangement, further changes in
any of those judgments are reasonably likely to occur in the future which could
have a material impact on our revenue recognition. If a collaborator terminates
an agreement in accordance with the terms of the agreement, we would recognize
any unamortized remainder of an upfront payment at the time of the
termination.
If we
cannot reasonably estimate the level of effort required to complete our
performance obligations under an arrangement and the performance obligations are
provided on a best-efforts basis, then the total upfront license payments would
be recognized as revenue on a straight-line basis over the period we expect to
complete our performance obligations.
If we are
involved in a steering or other committee as part of a multiple element
arrangement, we assess whether our involvement constitutes a performance
obligation or a right to participate. For those committees that are deemed
obligations, we will evaluate our participation along with other obligations in
the arrangement and will attribute revenue to our participation through the
period of our committee responsibilities. In relation to the Wyeth
Collaboration, we have assessed the nature of our involvement with the JSC, JDC
and JCC. Our involvement in the first two such committees is one of several
obligations to develop the subcutaneous and intravenous formulations of RELISTOR
through regulatory approval in the U.S. We have combined the committee
obligations with the other development obligations and are accounting for these
obligations during the development phase as a single unit of accounting. After
the development period, however, we have assessed the nature of our involvement
with the committees to be a right, rather than an obligation. Our assessment is
based upon the fact we negotiated to be on these committees as an accommodation
for our granting of the license for RELISTOR to Wyeth. Further, Wyeth has been
granted by us an exclusive license (even as to us) to the technology and
know-how regarding RELISTOR and has been assigned the agreements for the
manufacture of RELISTOR by third parties. Following regulatory approval of the
subcutaneous and intravenous formulations of RELISTOR, Wyeth is required to
continue to develop the oral formulation and to commercialize all formulations
as provided in the Wyeth Collaboration, for which it is capable and responsible.
During those periods, the activities of these committees will be focused on
Wyeth’s development and commercialization obligations. As discussed in Overview – Supportive Care,
Wyeth returned the rights to RELISTOR with respect to Japan to us in connection
with its election not to develop RELISTOR there and the transaction with Ono. As
a result, Wyeth is now responsible for the development of the oral formulation
worldwide excluding Japan and the intravenous and subcutaneous formulations
outside the U.S., other than Japan.
Collaborations
may also contain substantive milestone payments. Substantive milestone payments
are considered to be performance payments that are recognized upon achievement
of the milestone only if all of the following conditions are met: (i) the
milestone payment is non-refundable, (ii) achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of the
arrangement, (iii) substantive effort is involved in achieving the milestone,
(iv) the amount of the milestone payment is reasonable in relation to the effort
expended or the risk associated with achievement of the milestone, and (v) a
reasonable amount of time passes between the upfront license payment and the
first milestone payment as well as between each subsequent milestone payment
(Substantive Milestone Method). During October 2006, May 2007, April 2008 and
July 2008, we earned $5.0 million, $9.0 million, $15.0 million and $10.0
million, respectively, upon achievement of non-refundable milestones anticipated
in the Wyeth Collaboration; the first in connection with the commencement of a
phase 3 clinical trial of the intravenous formulation of RELISTOR, the second in
connection with the submission and acceptance for review of an NDA for a
subcutaneous formulation of RELISTOR with the FDA and a comparable submission in
the European Union, the third for the FDA approval of subcutaneous RELISTOR and
the fourth for the European approval of subcutaneous RELISTOR. We considered
those milestones to be substantive based on the significant degree of risk at
the inception of the Collaboration related to the conduct and successful
completion of clinical trials and, therefore, of not achieving the milestones;
the amount of the payment received relative to the significant costs incurred
since inception of the Wyeth Collaboration and amount of effort expended or the
risk associated with the achievement of these milestones; and the passage of
ten, 17, 28 and 31 months, respectively, from inception of the Collaboration to
the achievement of those milestones. Therefore, we recognized the milestone
payments as revenue in the respective periods in which the milestones were
earned.
Determination
as to whether a milestone meets the aforementioned conditions involves
management’s judgment. If any of these conditions are not met, the resulting
payment would not be considered a substantive milestone and, therefore, the
resulting payment would be considered part of the consideration and be
recognized as revenue as such performance obligations are performed under either
the proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.
We will
recognize revenue for payments that are contingent upon performance solely by
our collaborator immediately upon the achievement of the defined event if we
have no related performance obligations.
Reimbursement
of costs is recognized as revenue provided the provisions of EITF 99-19 are met,
the amounts are determinable and collection of the related receivable is
reasonably assured.
Royalty
revenue is recognized based upon net sales of related licensed products, as
reported to us by Wyeth. Royalty revenue is recognized in the period the sales
occur, provided that the royalty amounts are fixed or determinable, collection
of the related receivable is reasonably assured and we have no remaining
performance obligations under the arrangement providing for the royalty. If
royalties are received when we have remaining performance obligations, they
would be attributed to the services being provided under the arrangement and,
therefore, recognized as such obligations are performed under either the
proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts not
expected to be recognized within one year of the balance sheet date are
classified as long-term deferred revenue. The estimate of the classification of
deferred revenue as short-term or long-term is based upon management’s current
operating budget for the Wyeth Collaboration for our total effort required to
complete our performance obligations under that arrangement. That estimate may
change in the future and such changes to estimates would be accounted for
prospectively and would result in a change in the amount of revenue recognized
in future periods.
In
October 2008, we entered into an exclusive license agreement with Ono under
which we licensed to Ono the rights to subcutaneous RELISTOR in Japan and under
that agreement, in November 2008, we received from Ono an upfront payment of
$15.0 million. As of December 31, 2008, relative to the $15.0 million upfront
payment from Ono, we have recorded $15.0 million as deferred revenue – current,
which we expect to recognize as revenue during the first quarter of 2009, upon
satisfaction of our performance obligations.
Ono is
responsible for developing and commercializing subcutaneous RELISTOR in Japan,
including conducting the clinical development necessary to support regulatory
marketing approval. Ono is to own the subcutaneous filings and approvals
relating to RELISTOR in Japan. We are also entitled to receive up to an
additional $20.0 million, payable upon achievement of development milestones.
Ono is also obligated to pay to us royalties and commercialization milestones on
sales by Ono of subcutaneous RELISTOR in Japan. Ono has the option to acquire
from us the rights to develop and commercialize in Japan other formulations of
RELISTOR, including intravenous and oral forms, on terms to be negotiated
separately. Supervision of and consultation with respect to Ono’s development
and commercialization responsibilities will be carried out by joint committees
consisting of members from both Ono and us. Ono may request us to perform
activities related to its development and commercialization responsibilities
beyond our participation in these committees and specified technology
transfer-related tasks which will be at its expense, and payable to us for the
services it requests, at the time we perform services for them.
NIH grant
and contract revenue is recognized as efforts are expended and as related
subsidized project costs are incurred. We perform work under the NIH grants and
contract on a best-effort basis. The NIH reimburses us for costs associated with
projects in the fields of virology and cancer, including pre-clinical research,
development and early clinical testing of a prophylactic vaccine designed to
prevent HIV from becoming established in uninfected individuals exposed to the
virus, as requested by the NIH. Substantive at-risk milestone payments are
uncommon in these arrangements, but would be recognized as revenue on the same
basis as the Substantive Milestone Method.
Share-Based
Payment Arrangements. Our share-based compensation to employees includes
non-qualified stock options, restricted stock and shares issued under our
Purchase Plans, which are compensatory under Statement of Financial Accounting
Standards No. 123 (revised 2004) (FAS 123(R)) “Share-Based Payment.” We account
for share-based compensation to non-employees, including non-qualified stock
options and restricted stock, in accordance with EITF Issue No. 96-18
“Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Connection with Selling, Goods or Services.”
We
adopted FAS 123(R) using the modified prospective application, under which
compensation cost for all share-based awards that were unvested as of January 1,
2006, the adoption date, and those newly granted or modified after the adoption
date will be recognized in our financial statements over the related requisite
service periods; usually the vesting periods for awards with a service
condition. Compensation cost is based on the grant-date fair value of awards
that are expected to vest. As of December 31, 2008, there was $15.1 million,
$8.7 million and $0.07 million of total unrecognized compensation cost related
to non-vested stock options under the plans, the non-vested shares and the
Purchase Plans, respectively. Those costs are expected to be recognized
over weighted average periods of 2.6 years, 1.9 years and 0.04 years,
respectively. We apply a forfeiture rate to the number of unvested awards
in each reporting period in order to estimate the number of awards that are
expected to vest. Estimated forfeiture rates are based upon historical data on
vesting behavior of employees. We adjust the total amount of compensation cost
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. We have made an accounting
policy decision to use the straight-line method of attribution of compensation
expense, under which the grant date fair value of share-based awards will be
recognized on a straight-line basis over the total requisite service period for
the total award.
Under FAS
123(R), the fair value of each non-qualified stock option award is estimated on
the date of grant using the Black-Scholes option pricing model, which requires
input assumptions of stock price on the date of grant, exercise price,
volatility, expected term, dividend rate and risk-free interest rate. For this
purpose:
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· We
use the closing price of our common stock on the date of grant, as quoted
on The NASDAQ Stock Market LLC, as the exercise
price.
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· Historical
volatilities are based upon daily quoted market prices of our common stock
on The NASDAQ Stock Market LLC over a period equal to the expected term of
the related equity instruments. We rely only on historical volatility
since it provides the most reliable indication of future volatility.
Future volatility is expected to be consistent with historical; historical
volatility is calculated using a simple average calculation; historical
data is available for the length of the option’s expected term and a
sufficient number of price observations are used consistently. Since our
stock options are not traded on a public market, we do not use implied
volatility. For the years ended December 31, 2008 , 2007 and 2006, the
volatility of our common stock has been high, 66%-91%, 50%-89% and 69%-94%
, respectively, which is common for entities in the biotechnology industry
that do not have commercial products. A higher volatility input to the
Black-Scholes model increases the resulting compensation
expense.
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· The
expected term of options granted represents the period of time that
options granted are expected to be outstanding. For the years ended
December 31, 2008 and 2007, our expected term was calculated based upon
historical data related to exercise and post-termination cancellation
activity. Accordingly, for grants made to employees and officers
(excluding our Chief Executive Officer) and directors, we are using
expected terms of 5.33 and 7.30 years and 5.25 and 7.5 years,
respectively. Beginning in the third quarter of 2008, we estimated the
expected term of stock options granted to our Chief Executive Officer to
be 7.5 years. Expected term for options granted to non-employee
consultants was ten years, which is the contractual term of those options.
For the July 1, 2008 award, the Compensation Committee of the Board of
Directors modified the form of the grant used for stock incentive awards
to provide for vesting of stock incentive awards granted on that date
ratably over a three-year period and for acceleration of the vesting of
such awards and all previously granted and outstanding awards for any
employee in the event that, following a Change in Control, such employee’s
employment is Terminated without Cause (as such terms are defined in our
2005 Stock Incentive Plan). For the year ended December 31, 2006, our
expected term was calculated based upon the simplified method as detailed
in SAB No. 107. Accordingly, we used an expected term of 6.5 years based
upon the vesting period of the outstanding options of four or five years
and a contractual term of ten years. A shorter expected term would result
in a lower compensation expense.
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· Since
we have never paid dividends and do not expect to pay dividends in the
future, our dividend rate is zero.
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· The
risk-free rate for periods within the expected term of the options is
based on the U.S. Treasury yield curve in effect at the time of
grant.
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A portion
of the options granted to our Chief Executive Officer on July 1, 2002, 2003,
2004 and 2005, on July 3, 2006 and on July 2, 2007 cliff vests after nine years
and eleven months from the respective grant date. The July 1, 2002, 2003 and
2005 awards have fully vested. Vesting of a defined portion of each award will
occur earlier if a defined performance condition is achieved; more than one
condition may be achieved in any period. In accordance with FAS 123(R), at the
end of each reporting period, we will estimate the probability of achievement of
each performance condition and will use those probabilities to determine the
requisite service period of each award. The requisite service period for the
award is the shortest of the explicit or implied service periods. In the case of
the executive’s options, the explicit service period is nine years and eleven
months from the respective grant dates. The implied service periods related to
the performance conditions are the estimated times for each performance
condition to be achieved. Thus, compensation expense will be recognized over the
shortest estimated time for the achievement of performance conditions for that
award (assuming that the performance conditions will be achieved before the
cliff vesting occurs). On July 1, 2008, we granted options and restricted stock
to our Chief Executive Officer which vest on the basis of the achievement of
specified performance or market-based milestones. The options have an exercise
price equal to the closing price on our common stock on the date of grant while
the restricted stock awards do not include an exercise price. The awards to our
Chief Executive Officer are valued using a Monte Carlo simulation and the
expense related to these grants will be recognized over the shortest estimated
time for the achievement of the performance or market conditions. The awards
will not vest unless one of the milestones is achieved or the market condition
is met. Changes in the estimate of probability of achievement of any performance
or market condition will be reflected in compensation expense of the period of
change and future periods affected by the change.
The fair
value of shares purchased under the Purchase Plans is estimated on the date of
grant in accordance with Financial Accounting Standards Board (FASB) Technical
Bulletin No. 97-1 “Accounting under Statement 123 for Certain Employee Stock
Purchase Plans with a Look-Back Option.” The same option valuation model is used
for the Purchase Plans as for non-qualified stock options, except that the
expected term for the Purchase Plans is six months and the historical volatility
is calculated over the six month expected term.
In
applying the treasury stock method for the calculation of diluted earnings per
share (EPS), amounts of unrecognized compensation expense and windfall tax
benefits are required to be included in the assumed proceeds in the denominator
of the diluted earnings per share calculation unless they are anti-dilutive. We
incurred net losses for the years ended December 31, 2006, 2007 and 2008, and,
therefore, such amounts have not been included for those periods in the
calculation of diluted EPS since they would be anti-dilutive. Accordingly, basic
and diluted EPS are the same for those periods. We have made an accounting
policy decision to calculate windfall tax benefits/shortfalls for purposes of
diluted EPS calculations, excluding the impact of pro forma deferred tax assets.
This policy decision will apply when we have net income.
For the
years ended December 31, 2006, 2007 and 2008, no tax benefit was recognized
related to total compensation cost for share-based payment arrangements
recognized in operations because we had a net loss for the period and the
related deferred tax assets were fully offset by a valuation allowance.
Accordingly, no amounts related to windfall tax benefits have been reported in
cash flows from operations or cash flows from financing activities for the years
ended December 31, 2006, 2007 and 2008.
Research and
Development Expenses Including Clinical Trial Expenses. Clinical
trial expenses, which are included in research and development expenses,
represent obligations resulting from our contracts with various clinical
investigators and clinical research organizations in connection with conducting
clinical trials for our product candidates. Such costs are expensed as incurred,
and are based on the expected total number of patients in the trial, the rate at
which the patients enter the trial and the period over which the clinical
investigators and clinical research organizations are expected to provide
services. We believe that this method best approximates the efforts expended on
a clinical trial with the expenses we record. We adjust our rate of clinical
expense recognition if actual results differ from our estimates. The
Collaboration Agreement with Wyeth in which Wyeth has assumed all of the
financial responsibility for further development, mitigates those costs. In
addition to clinical trial expenses, we estimate the amounts of other research
and development expenses, for which invoices have not been received at the end
of a period, based upon communication with third parties that have provided
services or goods during the period.
On
January 1, 2008, we adopted EITF Issue 07-3 (EITF 07-3) “Accounting for Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities.” Prior to January 1, 2008, under Statement of Financial Accounting
Standards No. 2, “Accounting for Research and Development Costs,” non-refundable
advance payments for future research and development activities for materials,
equipment, facilities and purchased intangible assets that had no alternative
future use were expensed as incurred. Beginning January 1, 2008, we have been
capitalizing such non-refundable advance payments and expensing them as the
goods are delivered or the related services are performed. EITF 07-3 applies to
new contracts entered into after the effective date of January 1, 2008. The
adoption of EITF 07-3 did not have a material impact on the financial position
or results of operations.
Fair Value
Measurements. Our available-for-sale investment portfolio consists of
marketable securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, and is recorded at
fair value in the accompanying Consolidated Balance Sheets in accordance with
Statement of Financial Accounting Standards No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” The change in the fair value of
these investments is recorded as a component of other comprehensive
loss.
We
adopted Statement of Financial Accounting Standards No. 159 (FAS 159) “The Fair
Value Option of Financial Assets and Financial Liabilities” effective January 1,
2008, which provides companies with an option to report certain financial assets
and liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. The objective of FAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. We have
elected not to apply the fair value option to any of our financial assets or
liabilities.
We also
adopted Statement of Financial Accounting Standards No. 157 (FAS 157) “Fair
Value Measurements” effective January 1, 2008 for financial assets and financial
liabilities. FAS 157 defines fair value as the price that would be received to
sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date, and
establishes a framework to make the measurement of fair value more consistent
and comparable. In accordance with FASB Staff Position (FSP) No. FAS 157-2,
“Effective Date of FASB Statement No. 157,” we will defer the adoption of FAS
157 for our nonfinancial assets and nonfinancial liabilities until January 1,
2009. We are currently evaluating the impact of FAS 157 for nonfinancial assets
and nonfinancial liabilities, and currently do not expect the adoption of this
deferral to have a material effect on our financial position or results of
operations. The partial adoption of FAS 157 did not have a material impact on
our fair value measurements.
FAS 157
established a three-level hierarchy for fair value measurements that
distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reporting entity (“observable
inputs”) and the reporting entity’s own assumptions about market participant
assumptions developed based on the best information available in the
circumstances (“unobservable inputs”). The hierarchy level assigned to each
security in our available-for-sale portfolio is based on our assessment of the
transparency and reliability of the inputs used in the valuation of such
instrument at the measurement date. The three hierarchy levels are defined as
follows:
· Level
1 - Valuations based on unadjusted quoted market prices in active markets for
identical securities.
· Level
2 - Valuations based on observable inputs other than Level 1 prices, such as
quoted prices for similar assets at the measurement date, quoted prices in
markets that are not active or other inputs that are observable, either directly
or indirectly.
· Level
3 - Valuations based on inputs that are unobservable and significant to the
overall fair value measurement, and involve management
judgment.
Impact
of Recently Issued Accounting Standards
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161 (FAS
161) “Disclosures about Derivative Instruments and Hedging Activities – an
amendment to FASB Statement No. 133,” which is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures. The enhanced disclosure conveys the purpose of derivative
use to enable investors a better understanding of their effects on an entity's
financial position, financial performance, and cash flows. Entities are required
to provide enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years beginning after November 15, 2008, with early
adoption encouraged. We do not expect the effect of the adoption of FAS 161 to
have a material effect on our financial position or results of
operations.
In
October 2008, the FASB issued FSP No. FAS 157-3 (FSP FAS 157-3) “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active.”
FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not
active and illustrates how an entity should determine fair value when the market
for a financial asset is not active. FSP FAS 157-3 provides guidance on how an
entity’s own assumptions about cash flows and discount rates should be
considered when measuring fair value when relevant market data do not exist, how
observable market information in an inactive or dislocated market affects fair
value measurements and how the use of broker and pricing service quotes should
be considered when applying fair value measurements. FSP FAS 157-3 is effective
immediately as of September 30, 2008 and for all interim and annual periods
thereafter. The adoption of FSP FAS 157-3 did not have a material effect on our
financial position or results of operations.
In June
2008, the FASB issued FSP EITF Issue No. 03-6-1 (FSP EITF 03-6-1) “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” FSP EITF 03-6-1 requires entities to allocate
earnings to unvested and contingently issuable share-based payment awards that
have non-forfeitable rights to dividends or dividend equivalents when
calculating EPS and also present both basic EPS and diluted EPS pursuant to the
two-class method described in Statement of Financial Accounting Standards No.
128, “Earnings Per Share.” FSP EITF 03-6-1 is effective January 1, 2009 and
requires retrospective application. We are currently evaluating the impact this
FSP will have on our financial statements.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
Our
primary investment objective is to preserve principal while maximizing yield
without significantly increasing our risk. Our investments consist of taxable
corporate debt securities, securities of government-sponsored entities and
auction rate securities. Our investments totaled $129.0 million at December 31,
2008. Approximately $81.1 million of these investments had fixed interest rates,
and $47.9 million had interest rates that were variable. Our marketable
securities are classified as available-for-sale.
Due to
the conservative nature of our short-term fixed-interest-rate investments, we do
not believe that we have a material exposure to interest-rate risk. Our
fixed-interest-rate long-term investments are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair values of
these investments due to differences between the market interest rate and the
rate at the date of purchase of the investment. A 100 basis point increase in
the December 31, 2008 market interest rates would result in a decrease of
approximately $0.03 million in the market values of these
investments.
As a
result of recent changes in general market conditions, we determined to reduce
the principal amount of auction rate securities in our portfolio as they came up
for auction and invest the proceeds in other securities in accordance with our
investment guidelines. Beginning in February 2008, auctions failed for certain
of our auction rate securities because sell orders exceeded buy orders. As a
result, at December 31, 2008, we continue to hold approximately $4.1 million (3%
of assets measured at fair value) of auction rate securities, in respect of
which we have received all scheduled interest payments, which, in the event of
auction failure, are reset according to the contractual terms in the governing
instruments. The principal amount of these remaining auction rate securities
will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is
paid or a buyer outside the auction process emerges.
We
continue to monitor the market for auction rate securities and consider its
impact, if any, on the fair market value of our investments. If the auction rate
securities market conditions do not recover, we may be required to record
additional losses in 2009, which may affect our financial condition, cash flows
and net loss. We believe that the failed auctions experienced to date are not a
result of the deterioration of the underlying credit quality of these
securities, although valuation of them is subject to uncertainties that are
difficult to predict, such as changes to credit ratings of the securities and/or
the underlying assets supporting them, default rates applicable to the
underlying assets, underlying collateral value, discount rates, counterparty
risk, ongoing strength and quality of market credit and liquidity and general
economic and market conditions. We do not believe the carrying values of these
auction rate securities are other than temporarily impaired and therefore expect
the positions will eventually be liquidated without significant
loss.
The
valuation of the auction rate securities we hold is based on an internal
analysis of timing of expected future successful auctions, collateralization of
underlying assets of the security and credit quality of the security. As a
result of the estimated fair value, we have determined a temporary impairment in
the valuation of these securities of $0.3 million for the year ended December
31, 2008. A 100 basis point increase to our internal analysis would result in an
increase of approximately $0.042 million in the temporary impairment of these
securities as of the year ended December 31, 2008.
Item
8. Financial Statements and Supplementary
Data
See page
F-1, Index to Consolidated
Financial Statements.
Item
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the timelines specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can only provide reasonable assurance of achieving the
desired control objectives, and in reaching a reasonable level of assurance,
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(e), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our current disclosure
controls and procedures, as designed and implemented, were effective at the
reasonable assurance level.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting, as such
term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) during our
fiscal quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the
supervision of, our principal executive and principal financial officers and
effected by our Board, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures
that:
· Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
· Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorization of our management and directors;
and
· Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
has used the framework set forth in the report entitled Internal Control
– Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, known
as COSO, to evaluate the effectiveness of our internal control over financial
reporting. Management has concluded that our internal control over financial
reporting was effective as of December 31, 2008. The effectiveness of our
internal control over financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
Item
9B. Other Information
None.
The
information required by the Form 10-K Items listed in the following table
will be included under the respective headings specified for such Items in our
definitive proxy statement for our 2009 Annual Meeting of Stockholders to be
filed with the SEC:
Item
of Form 10-K
|
|
Location
in 2009 Proxy Statement
|
|
|
|
Item
10. Directors, Executive Officers and Corporate Governance
|
|
Board
and Committee Meetings.
Executive
Officers of the Company.
Section
16(a) Beneficial Ownership Reporting and Compliance.
Code
of Business Ethics and Conduct.*
*The full text of our code of business ethics and conduct is available on our website
(http://www.progenics.com/documents.cfm).
|
|
|
|
Item
11. Executive Compensation
|
|
Compensation
Committee Report.
Compensation
Committee Interlocks and Insider Participation.
|
|
|
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
|
Equity
Compensation Plan Information.
Security Ownership of Certain
Beneficial Owners and Management.
|
|
|
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
|
|
Certain
Relationships and Related Transactions.
Affirmative Determinations
Regarding Director Independence and Other
Matters.
|
|
|
|
Item
14. Principal Accounting Fees and Services
|
|
Fees
Billed for Services Rendered by our Independent Registered Public
Accounting Firm.
Pre-approval
of Audit and Non-Audit Services by the Audit
Committee.
|
PART
IV
Item
15. Exhibits, Financial Statement Schedules
The
following documents or the portions thereof indicated are filed as a part of
this Report.
|
a)
|
Documents
filed as part of this Report:
|
|
Consolidated
Financial Statements of Progenics Pharmaceuticals,
Inc.:
|
Report of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets at December 31, 2007 and 2008
Consolidated
Statements of Operations for the years ended December 31, 2006, 2007 and
2008
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for the years ended
December 31, 2006, 2007 and 2008
Consolidated
Statements of Cash Flows for the years ended December 31, 2006, 2007 and
2008
Notes to
Consolidated Financial Statements
Those
exhibits required to be filed by Item 601 of Regulation S-K are listed in the
Exhibit Index immediately following the signature page hereof and preceding the
exhibits filed herewith, and such listing is incorporated herein by
reference.
47
PROGENICS
PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Financial
Statements:
|
|
Consolidated
Balance Sheets at December 31, 2007 and 2008
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2006, 2007 and
2008
|
F-4
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss
for
the years ended December 31, 2006, 2007 and 2008
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006, 2007 and
2008
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
Report of
Independent Registered Public Accounting Firm
To
the Board of
Directors and Stockholders of
Progenics
Pharmaceuticals, Inc.:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Progenics Pharmaceuticals, Inc. and its subsidiaries at December 31,
2008 and 2007, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements and for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management's Report on Internal
Control Over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on these financial statements, and on the Company's internal
control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As
discussed in Note 2 and Note 3 to the consolidated financial statements, the
Company changed the manner in which it accounts for share-based compensation in
2006, the manner in which it accounts for uncertainties in income taxes in 2007,
and the manner in which it accounts for fair value measurements for its
financial assets and financial liabilities in 2008.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New York,
New York
March 9,
2009
PROGENICS
PHARMACEUTICALS, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except for par value and share amounts)
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
10,423 |
|
|
$ |
56,186 |
|
Marketable securities
|
|
|
120,000 |
|
|
|
63,127 |
|
Accounts receivable
|
|
|
1,995 |
|
|
|
1,337 |
|
Other current assets
|
|
|
3,111 |
|
|
|
3,531 |
|
Total
current assets
|
|
|
135,529 |
|
|
|
124,181 |
|
Marketable
securities
|
|
|
39,947 |
|
|
|
22,061 |
|
Fixed
assets, at cost, net of accumulated depreciation and
amortization
|
|
|
13,511 |
|
|
|
11,071 |
|
Restricted
cash
|
|
|
552 |
|
|
|
520 |
|
Total
assets
|
|
$ |
189,539 |
|
|
$ |
157,833 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
14,765 |
|
|
$ |
6,496 |
|
Deferred
revenue ¾
current
|
|
|
17,728 |
|
|
|
31,645 |
|
Other
current liabilities
|
|
|
57 |
|
|
|
57 |
|
Total
current liabilities
|
|
|
32,550 |
|
|
|
38,198 |
|
Deferred
revenue — long term
|
|
|
9,131 |
|
|
|
- |
|
Other
liabilities
|
|
|
359 |
|
|
|
266 |
|
Total
liabilities
|
|
|
42,040 |
|
|
|
38,464 |
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 20,000,000 shares authorized; issued and
outstanding — none
|
|
|
|
|
|
|
|
|
Common stock, $.0013 par value; 40,000,000 shares authorized; issued —
29,753,820 in 2007 and 30,807,387 in 2008
|
|
|
39 |
|
|
|
40 |
|
Additional
paid-in capital
|
|
|
401,500 |
|
|
|
422,085 |
|
Accumulated
deficit
|
|
|
(254,046
|
) |
|
|
(298,718
|
) |
Accumulated
other comprehensive income (loss)
|
|
|
6 |
|
|
|
(1,297
|
) |
Treasury
stock, at cost (zero shares in 2007 and 200,000 shares in
2008)
|
|
|
- |
|
|
|
(2,741
|
) |
Total
stockholders’ equity
|
|
|
147,499 |
|
|
|
119,369 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
189,539 |
|
|
$ |
157,833 |
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS PHARMACEUTICALS,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except for loss per share data)
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Research
and development from collaborator
|
|
$ |
58,415 |
|
|
$ |
65,455 |
|
|
$ |
59,885 |
|
Royalty
income
|
|
|
- |
|
|
|
- |
|
|
|
146 |
|
Research
grants and contract
|
|
|
11,418 |
|
|
|
10,075 |
|
|
|
7,460 |
|
Other
revenues
|
|
|
73 |
|
|
|
116 |
|
|
|
180 |
|
Total
revenues
|
|
|
69,906 |
|
|
|
75,646 |
|
|
|
67,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
61,711 |
|
|
|
95,234 |
|
|
|
82,290 |
|
In-process
research and development
|
|
|
13,209 |
|
|
|
- |
|
|
|
- |
|
License
fees – research and development
|
|
|
390 |
|
|
|
942 |
|
|
|
2,830 |
|
General
and administrative
|
|
|
22,259 |
|
|
|
27,901 |
|
|
|
28,834 |
|
Loss
in joint venture
|
|
|
121 |
|
|
|
- |
|
|
|
- |
|
Royalty
expense
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
Depreciation
and amortization
|
|
|
1,535 |
|
|
|
3,027 |
|
|
|
4,609 |
|
Total
expenses
|
|
|
99,225 |
|
|
|
127,104 |
|
|
|
118,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(29,319
|
) |
|
|
(51,458
|
) |
|
|
(50,907
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7,701 |
|
|
|
7,770 |
|
|
|
6,235 |
|
Total
other income
|
|
|
7,701 |
|
|
|
7,770 |
|
|
|
6,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(21,618 |
) |
|
$ |
(43,688 |
) |
|
$ |
(44,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$ |
(0.84 |
) |
|
$ |
(1.60 |
) |
|
$ |
(1.51 |
) |
Weighted-average shares - basic and diluted
|
|
|
25,669 |
|
|
|
27,378 |
|
|
|
29,654 |
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS PHARMACEUTICALS,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
For
the Years Ended December 31, 2006, 2007 and 2008
(in thousands)
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In
Capital
|
|
|
Unearned
Compensation
|
|
|
Accumulated
Deficit
|
|
|
Comprehensive
(Loss) Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
Balance
at December 31, 2005
|
|
|
25,229 |
|
|
$ |
33 |
|
|
$ |
306,085 |
|
|
$ |
(4,498 |
) |
|
$ |
(188,740 |
) |
|
$ |
(148 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
112,732 |
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,618 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,618 |
) |
Net
change in unrealized gain on marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
Total
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,615 |
) |
Compensation
expenses for share-based payment arrangements
|
|
|
- |
|
|
|
- |
|
|
|
12,034 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,034 |
|
Issuance
of restricted stock, net of forfeitures
|
|
|
228 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sale
of common stock under employee stock purchase plans and exercise of stock
options
|
|
|
742 |
|
|
|
1 |
|
|
|
7,074 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,075 |
|
Issuance
of compensatory stock options to non-employees
|
|
|
- |
|
|
|
- |
|
|
|
620 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
620 |
|
Elimination
of unearned compensation upon adoption of FAS 123(R)
|
|
|
- |
|
|
|
- |
|
|
|
(4,498 |
) |
|
|
4,498 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at December 31, 2006
|
|
|
26,199 |
|
|
|
34 |
|
|
|
321,315 |
|
|
|
- |
|
|
|
(210,358 |
) |
|
|
(145 |
) |
|
|
- |
|
|
|
- |
|
|
|
110,846 |
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(43,688 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(43,688 |
) |
Net
change in unrealized gain on marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
151 |
|
|
|
- |
|
|
|
- |
|
|
|
151 |
|
Total
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,537 |
) |
Compensation
expenses for share-based payment arrangements
|
|
|
- |
|
|
|
- |
|
|
|
15,306 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,306 |
|
Issuance
of restricted stock, net of forfeitures
|
|
|
267 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sale
of common stock in a public offering ($23.15 per share, net of
underwriting discounts and commissions and other offering expenses of
$3,112) (see Note 8)
|
|
|
2,600 |
|
|
|
3 |
|
|
|
57,075 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57,078 |
|
Sale
of common stock under employee stock purchase plans and exercise of stock
options
|
|
|
688 |
|
|
|
2 |
|
|
|
7,823 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,825 |
|
Repurchase
of restricted stock
|
|
|
- |
|
|
|
- |
|
|
|
(19 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(19 |
) |
Balance at December 31, 2007
|
|
|
29,754 |
|
|
|
39 |
|
|
|
401,500 |
|
|
|
- |
|
|
|
(254,046 |
) |
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
147,499 |
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,672 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,672 |
) |
Net
change in unrealized loss on marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,303 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,303 |
) |
Total
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,975 |
) |
Compensation
expenses for share-based payment arrangements
|
|
|
- |
|
|
|
- |
|
|
|
14,133 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,133 |
|
Issuance
of restricted stock, net of forfeitures
|
|
|
216 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sale
of common stock under employee stock purchase plans and exercise of stock
options
|
|
|
837 |
|
|
|
1 |
|
|
|
6,452 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,453 |
|
Treasury
shares acquired under repurchase program
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(200 |
) |
|
|
(2,741 |
) |
|
|
(2,741 |
) |
Balance at December 31, 2008
|
|
|
30,807 |
|
|
$ |
40 |
|
|
$ |
422,085 |
|
|
$ |
- |
|
|
$ |
(298,718 |
) |
|
$ |
(1,297 |
) |
|
|
(200 |
) |
|
$ |
(2,741 |
) |
|
$ |
119,369 |
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS PHARMACEUTICALS,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(21,618 |
) |
|
$ |
(43,688 |
) |
|
$ |
(44,672 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,535 |
|
|
|
3,027 |
|
|
|
4,609 |
|
Write-off
of fixed assets
|
|
|
2 |
|
|
|
- |
|
|
|
3 |
|
Amortization
of discounts, net of premiums, on marketable securities
|
|
|
9 |
|
|
|
(445
|
) |
|
|
960 |
|
Expenses
for share-based compensation awards
|
|
|
12,654 |
|
|
|
15,306 |
|
|
|
14,133 |
|
Expense
of purchased technology
|
|
|
13,209 |
|
|
|
- |
|
|
|
- |
|
Loss
in joint venture
|
|
|
121 |
|
|
|
- |
|
|
|
- |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
1,588 |
|
|
|
(296
|
) |
|
|
658 |
|
(Increase)
decrease in other current assets
|
|
|
(620
|
) |
|
|
70 |
|
|
|
(420
|
) |
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
1,533 |
|
|
|
2,913 |
|
|
|
(8,269
|
) |
Decrease
in due to joint venture
|
|
|
(194
|
) |
|
|
- |
|
|
|
- |
|
Decrease
in investment in joint venture
|
|
|
250 |
|
|
|
- |
|
|
|
- |
|
(Decrease)
increase in deferred revenue
|
|
|
(16,910
|
) |
|
|
(16,231
|
) |
|
|
4,786 |
|
(Decrease)
increase in other current liabilities
|
|
|
(790
|
) |
|
|
57 |
|
|
|
- |
|
Increase
(decrease) in other liabilities
|
|
|
74 |
|
|
|
236 |
|
|
|
(93
|
) |
Net
cash used in operating activities
|
|
|
(9,157
|
) |
|
|
(39,051
|
) |
|
|
(28,305
|
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(8,768
|
) |
|
|
(5,151
|
) |
|
|
(2,172
|
) |
Sales/maturities
of marketable securities
|
|
|
267,934 |
|
|
|
252,850 |
|
|
|
128,705 |
|
Purchase
of marketable securities
|
|
|
(299,075
|
) |
|
|
(275,048
|
) |
|
|
(56,209
|
) |
Acquisition
of PSMA LLC, net of cash acquired
|
|
|
(13,128
|
) |
|
|
- |
|
|
|
- |
|
(Increase)
decrease in restricted cash
|
|
|
(6
|
) |
|
|
(8
|
) |
|
|
32 |
|
Net
cash (used in) provided by investing activities
|
|
|
(53,049
|
) |
|
|
(27,357
|
) |
|
|
70,356 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock in public offering
|
|
|
- |
|
|
|
60,190 |
|
|
|
- |
|
Expenses
related to the sale of common stock in public offering
|
|
|
- |
|
|
|
(3,112
|
) |
|
|
- |
|
Purchase
of treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
(2,741
|
) |
Proceeds
from the exercise of stock options and sale of common stock under the
Employee Stock Purchase Plan
|
|
|
7,075 |
|
|
|
7,825 |
|
|
|
6,453 |
|
Repurchase
of restricted stock
|
|
|
- |
|
|
|
(19
|
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
|
7,075 |
|
|
|
64,884 |
|
|
|
3,712 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(55,125
|
) |
|
|
(1,524
|
) |
|
|
45,763 |
|
Cash
and cash equivalents at beginning of period
|
|
|
67,072 |
|
|
|
11,947 |
|
|
|
10,423 |
|
Cash
and cash equivalents at end of period
|
|
$ |
11,947 |
|
|
$ |
10,423 |
|
|
$ |
56,186 |
|
Supplemental
disclosure of noncash investing activity:
|
|
|
|
|
|
|
|
|
|
Fair
value of assets, including purchased technology, acquired from PSMA
LLC
|
|
$
|
13,674
|
|
|
|
|
|
|
Cash paid for acquisition of PSMA LLC
|
|
|
(13,459
|
)
|
|
|
|
|
|
Liabilities assumed from PSMA LLC
|
|
$
|
215
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands, except per share amounts or unless otherwise noted)
1.
Organization and Business
Progenics
Pharmaceuticals, Inc. (“Progenics,” “we” or “us”) is a biopharmaceutical company
focusing on the development and commercialization of innovative therapeutic
products to treat the unmet medical needs of patients with debilitating
conditions and life-threatening diseases. Our principal programs are directed
toward supportive care, virology and oncology.
Progenics
commenced principal operations in 1988 and in 2006 acquired full ownership of
PSMA Development Company LLC (“PSMA LLC”) (see Note 12). Certain of our
intellectual property rights are held by wholly owned subsidiaries. None of our
subsidiaries other than PSMA LLC had operations during the years ended December
31, 2006, 2007 or 2008. Currently, all of our operations are conducted at our
facilities in Tarrytown, New York. Our chief operating decision maker reviews
financial analyses and forecasts relating to all of our research programs as a
single unit and allocates resources and assesses performance of such programs as
a whole. We operate under a single research and development
segment.
Supportive
Care
Our first
commercial product, RELISTOR®
(methylnaltrexone bromide), was approved by the U.S. Food and Drug
Administration (“FDA”) for sale in the United States in April 2008. Our
collaboration partner, Wyeth Pharmaceuticals (“Wyeth”), commenced sales of
RELISTOR subcutaneous injection in June, and we have begun earning royalties on
world-wide sales. Regulatory approvals have also been obtained in Canada, the
European Union, Australia and Venezuela, and marketing applications have been
approved or are pending or scheduled in other countries. In October, we
out-licensed to Ono Pharmaceutical Co., Ltd., Osaka, Japan, the rights to
subcutaneous RELISTOR in Japan. We continue development and clinical trials with
respect to other indications for RELISTOR.
Development
and commercialization of RELISTOR is being conducted under a license and
co-development agreement (“Wyeth Collaboration Agreement”) between us and Wyeth
(see Note 9). Under that agreement, we (i) have received an upfront payment from
Wyeth, (ii) have received and are entitled to receive additional payments as
certain developmental milestones for RELISTOR are achieved, (iii) have been and
are entitled to be reimbursed by Wyeth for expenses we incur in connection with
the development of RELISTOR under an agreed-upon development plan and budget,
and (iv) have received and are entitled to receive royalties and
commercialization milestone payments. Manufacturing and commercialization
expenses for RELISTOR are funded by Wyeth.
In
October 2006, we earned a $5.0 million milestone payment in connection with the
start of a phase 3 clinical trial of intravenous RELISTOR for the treatment of
post-operative ileus (“POI”). In May 2007, we earned $9.0 million, representing
two milestone payments, under the Wyeth Collaboration Agreement for having made
filings seeking marketing approval for RELISTOR subcutaneous injection in the
U.S. and Europe. In April 2008, we earned a $15.0 million milestone payment from
Wyeth for the FDA approval of subcutaneous RELISTOR, and in July 2008, we earned
a $10.0 million milestone payment from Wyeth for European approval of
subcutaneous RELISTOR.
We and
Wyeth are also developing intravenous and oral formulations of
RELISTOR.
Wyeth has
elected, as it was entitled to do under our Collaboration, not to develop
RELISTOR in Japan, and as provided in that Agreement returned to us the rights
to RELISTOR in Japan. In October 2008, we entered into an exclusive License
Agreement with Ono Pharmaceutical Co., Ltd. (“Ono”), Osaka, Japan under which we
licensed to Ono the rights to subcutaneous RELISTOR in Japan which we reacquired
from Wyeth as a result of its election. Under that agreement, in November 2008,
we received from Ono an upfront payment of $15.0 million, and are entitled to
receive potential development milestones of up to $20.0 million, commercial
milestones and royalties on sales by Ono of subcutaneous RELISTOR in Japan. Ono
also has the option to acquire from us the rights to develop and commercialize
in Japan other formulations of RELISTOR, including intravenous and oral forms,
on terms to be negotiated separately.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
As a
result of the return of the Japanese rights, we will not receive from Wyeth,
milestone payments related to the development of RELISTOR formulations in Japan.
These potential future milestone payments would have totaled $22.5 million (of
which $7.5 million related to the subcutaneous formulation of RELISTOR and the
remainder to the intravenous and oral formulations). Taking these adjustments
into account, we now have the potential to receive a total of $334.0 million in
development and commercialization milestone payments from Wyeth under the Wyeth
Collaboration Agreement (of which $60.0 million relate to the intravenous
formulation of RELISTOR), and of which $39.0 million ($5.0 million relating to
the intravenous formulation) have been paid to date.
The
payments described above will depend on continued success in development and
commercialization of RELISTOR, which are in turn dependent on the actions of
Wyeth, Ono, the FDA and other regulatory bodies, as well as the outcome of
clinical and other testing of RELISTOR. Many of these matters are outside our
control.
Virology
In the
area of virology, we are developing two viral-entry inhibitors: a humanized
monoclonal antibody, PRO 140, for treatment of human immunodeficiency virus
(“HIV”), the virus that causes acquired immunodeficiency syndrome (“AIDS”), and
a proprietary orally-available small-molecule drug candidate, designated PRO
206, for treatment of hepatitis C virus infection (“HCV”). We have recently
selected for further clinical development the subcutaneous form of PRO 140 for
treatment of HIV infection, which has the potential for convenient, weekly
self-administration, and we are conducting preclinical development activities in
preparation for filing an Investigational New Drug (“IND”) application for PRO
206. We are also engaged in research regarding prophylactic vaccines against HIV
infection.
Oncology
In the
area of prostate cancer, we are conducting a phase 1 clinical trial of a fully
human monoclonal antibody-drug conjugate (“ADC”) directed against prostate
specific membrane antigen (“PSMA”), a protein found at high levels on the
surface of prostate cancer cells and also on the neovasculature of a number of
other types of solid tumors. We are also developing therapeutic vaccines
designed to stimulate an immune response to PSMA. Our PSMA programs are
conducted through our wholly owned subsidiary, PSMA LLC.
Our
virology and oncology product candidates are not as advanced in development as
RELISTOR, and we do not expect any recurring revenues from sales or otherwise
with respect to these product candidates in the near term. Wyeth’s agreement to
reimburse us for RELISTOR development expenses enables us to devote current and
future resources to other research and development programs.
Corporate-Related
Matters
We may
require additional funding to continue our operations. As a result, we may enter
into a collaboration agreement, license or sale transaction or royalty sales or
financings with respect to our products and product candidates. We may also seek
to raise additional capital through the sale of our common stock or other
securities and expect to fund certain aspects of our operations through
government grants and contracts.
We have
had recurring losses since our inception. At December 31, 2008, we had an
accumulated deficit of $298.7 million and had cash, cash equivalents and
marketable securities, including non-current portion, totaling $141.4 million.
We expect that cash, cash equivalents and marketable securities at December 31,
2008 will be sufficient to fund current operations beyond one year. During the
year ended December 31, 2008, we had a net loss of $44.7 million and used cash
in operating activities of $28.3 million.
In April,
2008, our Board of Directors approved a share repurchase program to acquire up
to $15.0 million of our outstanding common shares, funding for which comes from
the $15.0 million milestone payment we received from Wyeth related to U.S.
marketing approval for RELISTOR. Purchases under the program are made at our
discretion subject to market conditions in the open-market or otherwise, and in
accordance with the regulations of the U.S. Securities and Exchange Commission
(“SEC”), including Rule 10b-18. During the year ended December 31, 2008, we
repurchased 200,000 of our outstanding common shares. Purchases may be
discontinued at any time. Reacquired shares will be held in treasury until
redeployed or retired. We have $12.3 million remaining available for purchases
under the program.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Pending use in our business, our revenues and proceeds of financing activities
are held in cash, cash equivalents and marketable securities. Our marketable
securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available-for-sale.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America (“GAAP”). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and the accompanying notes. As additional information
becomes available or actual amounts become determinable, the recorded estimates
are revised and reflected in the operating results. Actual results could differ
from those estimates.
Certain
amounts have been reclassified in prior years’ financial statements to conform
to the current presentation. This includes the reclassification of certain
expenses from license fees-research and development to research and development
which had no effect on total expenses as previously reported.
Consolidation
The
consolidated financial statements include the accounts of Progenics, as of and
for the years ended December 31, 2006, 2007 and 2008, the balance sheet accounts
of PSMA LLC as of December 31, 2007 and 2008 and the statement of operations
accounts of PSMA LLC from April 20, 2006 to December 31, 2006 and for the years
ended December 31, 2007 and 2008 (see Notes 1 and 12). Inter-company
transactions have been eliminated in consolidation.
Revenue
Recognition
We
recognize revenue from all sources based on the provisions of the
SEC’s Staff Accounting Bulletin (“SAB”) No. 104 (“SAB 104”), Emerging
Issues Task Force (“EITF”) Issue No. 00-21 (“EITF 00-21”) “Accounting for
Revenue Arrangements with Multiple Deliverables” and EITF Issue No. 99-19 (“EITF
99-19”) “Reporting Revenue Gross as a Principal Versus Net as an Agent.” Our
license and co-development agreement with Wyeth includes a non-refundable
upfront license fee, reimbursement of development costs, research and
development payments based upon our achievement of clinical development
milestones, contingent payments based upon the achievement by Wyeth of defined
events and royalties on product sales. We began recognizing research revenue
from Wyeth on January 1, 2006. During the years ended December 31, 2008, 2007
and 2006, we also recognized revenue from government research grants and
contract, which are used to subsidize a portion of certain of our research
projects (“Projects”), exclusively from the National Institutes of Health
(“NIH”). We also recognized revenue from the sale of research reagents during
those periods.
Non-refundable
upfront license fees are recognized as revenue when we have a contractual right
to receive such payment, the contract price is fixed or determinable, the
collection of the resulting receivable is reasonably assured and we have no
further performance obligations under the license agreement. Multiple element
arrangements, such as license and development arrangements are analyzed to
determine whether the deliverables, which often include a license and
performance obligations, such as research and steering or other committee
services, can be separated in accordance with EITF 00-21. We would recognize
upfront license payments as revenue upon delivery of the license only if the
license had standalone value and the fair value of the undelivered performance
obligations, typically including research or steering or other committee
services, could be determined. If the fair value of the undelivered performance
obligations could be determined, such obligations would then be accounted for
separately as performed. If the license is considered to either (i) not have
standalone value, or (ii) have standalone value but the fair value of any of the
undelivered performance obligations could not be determined, the upfront license
payments would be recognized as revenue over the estimated period of when our
performance obligations are performed.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
We must determine the period over which our performance obligations will be
performed and revenue related to upfront license payments will be recognized.
Revenue will be recognized using either a proportionate performance or
straight-line method. We recognize revenue using the proportionate performance
method provided that we can reasonably estimate the level of effort required to
complete our performance obligations under an arrangement and such performance
obligations are provided on a best-efforts basis. Direct labor hours or
full-time equivalents will typically be used as the measure of performance.
Under the proportionate performance method, revenue related to upfront license
payments is recognized in any period as the percent of actual effort expended in
that period relative to total effort for all of our performance obligations
under the arrangement. We are recognizing revenue related to the upfront license
payment we received from Wyeth using the proportionate performance method since
we can reasonably estimate the level of effort required to complete our
performance obligations under the Wyeth Collaboration Agreement based upon the
most current budget approved by both Wyeth and us. Such performance obligations
are provided by us on a best-efforts basis. Full-time equivalents are being used
as the measure of performance. Significant judgment is required in determining
the nature and assignment of tasks to be accomplished by each of the parties and
the level of effort required for us to complete our performance obligations
under the arrangement. The nature and assignment of tasks to be performed by
each party involves the preparation, discussion and approval by the parties of a
development plan and budget. Since we have no obligation to develop the
subcutaneous and intravenous formulations of RELISTOR outside the U.S. or the
oral formulation at all and have no significant commercialization obligations
for any product, recognition of revenue for the upfront payment is not required
during those periods, if they extend beyond the period of our development
obligations.
During
the course of a collaboration agreement, e.g., the Wyeth Collaboration
Agreement, that involves a development plan and budget, the amount of the
upfront license payment that is recognized as revenue in any period will
increase or decrease as the percentage of actual effort increases or decreases,
as described above. When a new budget is approved, generally annually, the
remaining unrecognized amount of the upfront license fee will be recognized
prospectively, using the methodology described above and applying any changes in
the total estimated effort or period of development that is specified in the
revised approved budget. The amounts of the upfront license payment that we
recognized as revenue for each fiscal quarter prior to the third quarter of 2007
were based upon several revised approved budgets, although the revisions to
those budgets did not materially affect the amounts of revenue recognized in
those periods. During the third quarter of 2007, the estimate of our total
remaining effort to complete our development obligations was increased
significantly based upon a revised development budget approved by both us and
Wyeth. As a result, the period over which our obligations will extend, and over
which the upfront payment will be amortized, was extended from the end of 2008
to the end of 2009. Consequently, the amount of revenue recognized from the
upfront payment in the year ended December 31, 2008 declined relative to that in
the comparable period of 2007. Due to the significant judgments involved in
determining the level of effort required under an arrangement and the
period over which we expect to complete our performance obligations under the
arrangement, further changes in any of those judgments are reasonably likely to
occur in the future which could have a material impact on our revenue
recognition. If a collaborator terminates an agreement in accordance with the
terms of the agreement, we would recognize any unamortized remainder of an
upfront payment at the time of the termination.
If we
cannot reasonably estimate the level of effort required to complete our
performance obligations under an arrangement and the performance obligations are
provided on a best-efforts basis, then the total upfront license payments would
be recognized as revenue on a straight-line basis over the period we expect to
complete our performance obligations.
If we are
involved in a steering or other committee as part of a multiple element
arrangement, we assess whether our involvement constitutes a performance
obligation or a right to participate. For those committees that are deemed
obligations, we will evaluate our participation along with other obligations in
the arrangement and will attribute revenue to our participation through the
period of our committee responsibilities. In relation to the Wyeth Collaboration
Agreement, we have assessed the nature of our involvement with the Joint
Steering Committee (“JSC”), Joint Development Committee (“JDC’) and Joint
Commercialization Committee (“JCC”). Our involvement in the first two such
committees is one of several obligations to develop the subcutaneous and
intravenous formulations of RELISTOR through regulatory approval in the U.S. We
have combined the committee obligations with the other development obligations
and are accounting for these obligations during the development phase as a
single unit of accounting. After the development period, however, we have
assessed the nature of our involvement with the committees to be a right, rather
than an obligation. Our assessment is based upon the fact we negotiated to be on
these committees as an accommodation for our granting of the license for
RELISTOR to Wyeth. Further, Wyeth has been granted by us an exclusive license
(even as to us) to the technology and know-how regarding RELISTOR and has been
assigned the agreements for the manufacture of RELISTOR by third parties.
Following regulatory approval of the subcutaneous and intravenous formulations
of RELISTOR, Wyeth is obligated to continue to develop the oral formulation and
to commercialize all formulations as provided in the Wyeth Collaboration
Agreement, for which it is capable and responsible. During those periods, the
activities of these committees will be focused on Wyeth’s development and
commercialization obligations. As discussed in Note 1, Wyeth returned the rights
to RELISTOR with respect to Japan to us in connection with its election not to
develop RELISTOR there and the transaction with Ono. As a result, Wyeth is now
responsible for the development of the oral formulation worldwide excluding
Japan and the intravenous and subcutaneous formulations outside the U.S., other
than Japan.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Collaborations
may also contain substantive milestone payments. Substantive milestone payments
are considered to be performance payments that are recognized upon achievement
of the milestone only if all of the following conditions are met: (i) the
milestone payment is non-refundable, (ii) achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of the
arrangement, (iii) substantive effort is involved in achieving the milestone,
(iv) the amount of the milestone payment is reasonable in relation to the effort
expended or the risk associated with achievement of the milestone, and (v) a
reasonable amount of time passes between the upfront license payment and the
first milestone payment as well as between each subsequent milestone payment
(the “Substantive Milestone Method”). During October 2006, May 2007, April 2008
and July 2008, we earned $5.0 million, $9.0 million (two milestone payments),
$15.0 million and $10.0 million, respectively, upon achievement of
non-refundable milestones anticipated in the Wyeth Collaboration Agreement; the
first in connection with the commencement of a phase 3 clinical trial of the
intravenous formulation of RELISTOR, the second and third in connection with the
submission and acceptance for review of an NDA for a subcutaneous formulation of
RELISTOR with the FDA and a comparable submission in the European Union, the
fourth for the FDA approval of subcutaneous RELISTOR and the fifth for the
European approval of subcutaneous RELISTOR. We considered those milestones to be
substantive based on the significant degree of risk at the inception of the
Wyeth Collaboration Agreement related to the conduct and successful completion
of clinical trials and, therefore, of not achieving the milestones; the amount
of the payment received relative to the significant costs incurred since
inception of the Collaboration and amount of effort expended or the risk
associated with the achievement of these milestones; and the passage of ten, 17,
28 and 31 months, respectively, from inception of the Wyeth Collaboration
Agreement to the achievement of those milestones. Therefore, we recognized the
milestone payments as revenue in the respective periods in which the milestones
were earned.
Determination
as to whether a milestone meets the aforementioned conditions involves
management’s judgment. If any of these conditions are not met, the resulting
payment would not be considered a substantive milestone and, therefore, the
resulting payment would be considered part of the consideration and be
recognized as revenue as such performance obligations are performed under either
the proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.
We will
recognize revenue for payments that are contingent upon performance solely by
our collaborator immediately upon the achievement of the defined event if we
have no related performance obligations.
Reimbursement
of costs is recognized as revenue provided the provisions of EITF 99-19 are met,
the amounts are determinable and collection of the related receivable is
reasonably assured.
Royalty
revenue is recognized based upon net sales of related licensed products, as
reported to us by Wyeth. Royalty revenue is recognized in the period the sales
occur, provided that the royalty amounts are fixed or determinable, collection
of the related receivable is reasonably assured and we have no remaining
performance obligations under the arrangement providing for the royalty. If
royalties are received when we have remaining performance obligations, they
would be attributed to the services being provided under the arrangement and,
therefore, recognized as such obligations are performed under either the
proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts not
expected to be recognized within one year of the balance sheet date are
classified as long-term deferred revenue. The estimate of the classification of
deferred revenue as short-term or long-term is based upon management’s current
operating budget for the Wyeth Collaboration Agreement for our total effort
required to complete our performance obligations under that arrangement. That
estimate may change in the future and such changes to estimates would be
accounted for prospectively and would result in a change in the amount of
revenue recognized in future periods.
In
October 2008, we entered into an exclusive license agreement with Ono under
which we licensed to Ono the rights to subcutaneous RELISTOR in Japan and under
that agreement, in November 2008, we received from Ono an upfront payment of
$15.0 million. As of December 31, 2008, relative to the $15.0 million upfront
payment from Ono, we have recorded $15.0 million as deferred revenue – current,
which we expect to recognize as revenue during the first quarter of 2009, upon
satisfaction of our performance obligations.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Ono is
responsible for developing and commercializing subcutaneous RELISTOR in Japan,
including conducting the clinical development necessary to support regulatory
marketing approval. Ono is to own the subcutaneous filings and approvals
relating to RELISTOR in Japan. We are also entitled to receive up to an
additional $20.0 million, payable upon achievement of development milestones.
Ono is also obligated to pay to us royalties and commercialization milestones on
sales by Ono of subcutaneous RELISTOR in Japan. Ono has the option to acquire
from us the rights to develop and commercialize in Japan other formulations of
RELISTOR, including intravenous and oral forms, on terms to be negotiated
separately. Supervision of and consultation with respect to Ono’s development
and commercialization responsibilities will be carried out by joint committees
consisting of members from both Ono and us. Ono may request us to perform
activities related to its development and commercialization responsibilities
beyond our participation in these committees and specified technology
transfer-related tasks which will be at its expense, and payable to us for the
services it requests, at the time we perform services for them.
NIH grant
and contract revenue is recognized as efforts are expended and as related
subsidized project costs are incurred. We perform work under the NIH grants and
contract on a best-effort basis. The NIH reimburses us for costs associated with
projects in the fields of virology and cancer, including pre-clinical research,
development and early clinical testing of a prophylactic vaccine designed to
prevent HIV from becoming established in uninfected individuals exposed to the
virus, as requested by the NIH. Substantive at-risk milestone payments are
uncommon in these arrangements, but would be recognized as revenue on the same
basis as the Substantive Milestone Method.
Research
and Development Expenses
Research
and development expenses include costs directly attributable to the conduct of
research and development programs, including the cost of salaries, payroll
taxes, employee benefits, materials, supplies, maintenance of research
equipment, costs related to research collaboration and licensing agreements, the
purchase of in-process research and development, the cost of services provided
by outside contractors, including services related to the our clinical trials,
clinical trial expenses, the full cost of manufacturing drug for use in
research, pre-clinical development and clinical trials. All costs associated
with research and development are expensed as incurred.
For each
clinical trial that Progenics’ conducts, certain costs, which are included in
research and development expenses, are expensed based on the estimated period
over which clinical investigators or contract research organizations provide
services and total number of subjects in the trial including the estimated rate
at which subjects enter the trial. At each period end, we evaluate the accrued
expense balance related to these activities based upon information received from
the suppliers and estimated progress towards completion of the research or
development objectives to ensure that the balance is reasonably stated. Such
estimates are subject to change as additional information becomes
available.
Use
of Estimates
Significant
estimates include useful lives of fixed assets, the periods over which certain
revenues and expenses will be recognized, including research and development
revenue recognized from non-refundable up-front licensing payments and expense
recognition of certain clinical trial costs which are included in research and
development expenses, the amount of non-cash compensation costs related to
share-based payments to employees and non-employees and the periods over which
those costs are expensed and the likelihood of realization of deferred tax
assets.
Patents
As a
result of research and development efforts conducted by us, we have applied, or
are applying, for a number of patents to protect proprietary inventions. All
costs associated with patents are expensed as incurred.
Net
Loss Per Share
We
prepare our earnings per share (“EPS”) data in accordance with Statement of
Financial Accounting Standards No. 128 (“FAS 128”) “Earnings Per Share.” Basic
net loss per share is computed on the basis of net loss for the period divided
by the weighted average number of shares of common stock outstanding during the
period, which includes restricted shares only as the restrictions lapse.
Potential common shares, amounts of unrecognized compensation expense and
windfall tax benefits have been excluded from diluted net loss per share since
they would be anti-dilutive.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Concentrations
of Credit Risk
Financial
instruments that potentially subject Progenics to concentrations of credit risk
consist of cash, cash equivalents, marketable securities and receivables from
Wyeth, Ono and the NIH. We invest our excess cash in money market funds,
corporate debt securities and federal agency issues. We have established
guidelines that relate to credit quality, diversification and maturity and that
limit exposure to any one issue of securities. We hold no collateral for these
financial instruments.
Cash
and Cash Equivalents
We
consider all highly liquid investments which have maturities of three months or
less, when acquired, to be cash equivalents. The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value. Cash
and cash equivalents subject us to concentrations of credit risk. At December
31, 2007 and 2008, we have invested approximately $4,249 and $43,859,
respectively, in cash equivalents in the form of money market funds with two
major investment companies and held approximately $6,174 and $12,327,
respectively, in a single commercial bank. Restricted cash represents amounts
held in escrow for security deposits and credit cards.
Marketable
Securities
In
accordance with Statement of Financial Accounting Standards No. 115 (“FAS 115”)
“Accounting for Certain Debt and Equity Securities,” investments are classified
as available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized
gains and losses reported in comprehensive income (loss). The amortized cost of
debt securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income or expense. Realized gains and losses and declines in value judged to be
other-than-temporary, if any, on available-for-sale securities are included in
other income or expense. In computing realized gains and losses, we compute the
cost of its investments on a specific identification basis. Such cost includes
the direct costs to acquire the securities, adjusted for the amortization of any
discount or premium. The fair value of marketable securities has been estimated
based on quoted market prices. Interest and dividends on securities classified
as available-for-sale are included in interest income (see Note 4).
At
December 31, 2007 and 2008, our investment in marketable securities in the
current and long term assets sections of the consolidated balance sheets
included $38.8 million and $4.1 million, respectively, of auction rate
securities. Beginning in February 2008, auctions failed for certain of our
auction rate securities because sell orders exceeded buy orders. Valuation of
securities is subject to uncertainties that are difficult to predict, such as
changes to credit ratings of the securities and/or the underlying assets
supporting them, default rates applicable to the underlying assets, underlying
collateral value, discount rates, counterparty risk, ongoing strength and
quality of market credit and liquidity and general economic and market
conditions. The valuation of the auction rate securities we hold is based on an
internal analysis of timing of expected future successful auctions,
collateralization of underlying assets of the security and credit quality of the
security. As a result of the estimated fair value, we have determined a
temporary impairment in the valuation of these securities of $0.3 million for
the year ended December 31, 2008. All income generated from these current
investments was recorded as interest income (see Note 4).
Fair
Value Measurements
We
adopted Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standards No. 157 (“FAS 157”) “Fair Value Measurements” effective
January 1, 2008 for financial assets and financial liabilities. FAS 157 defines
fair value as the price that would be received to sell an asset or would be paid
to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date, and
establishes a framework to make the measurement of fair value more consistent
and comparable. In accordance with FASB Staff Position (“FSP”) No. FAS 157-2,
“Effective Date of FASB Statement No. 157” we will defer the adoption of FAS 157
for our nonfinancial assets and nonfinancial liabilities until January 1, 2009.
We are currently evaluating the impact of FAS 157 for nonfinancial assets and
nonfinancial liabilities, and currently do not expect the adoption of this
deferral to have a material effect on our financial position or results of
operations. The partial adoption of FAS 157 did not have a material impact on
our fair value measurements.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
FAS 157
established a three-level hierarchy for fair value measurements that
distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reporting entity (“observable
inputs”) and the reporting entity’s own assumptions about market participant
assumptions developed based on the best information available in the
circumstances (“unobservable inputs”). The hierarchy level assigned to each
security in our available-for-sale portfolio is based on our assessment of the
transparency and reliability of the inputs used in the valuation of such
instrument at the measurement date. The three hierarchy levels are defined as
follows:
|
· Level
1 - Valuations based on unadjusted quoted market prices in active markets
for identical securities.
|
|
· Level
2 - Valuations based on observable inputs other than Level 1 prices, such
as quoted prices for similar assets at the measurement date, quoted prices
in markets that are not active or other inputs that are observable, either
directly or indirectly.
|
|
· Level
3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement, and involve management
judgment.
|
We also
adopted Statement of Financial Accounting Standards No. 159 (“FAS 159”) “The
Fair Value Option of Financial Assets and Financial Liabilities” effective
January 1, 2008, which provides companies with an option to report certain
financial assets and liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings.
FAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The objective of FAS 159
is to reduce both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and liabilities
differently. We have elected not to apply the fair value option to any of our
financial assets or liabilities.
Fixed
Assets
Leasehold
improvements, furniture and fixtures, and equipment are stated at cost.
Furniture, fixtures and equipment are depreciated on a straight-line basis over
their estimated useful lives. Leasehold improvements are amortized on a
straight-line basis over the
life of the lease or of the improvement, whichever is shorter. Costs of
construction of long-lived assets are capitalized but are not depreciated until
the assets are placed in service.
Expenditures
for maintenance and repairs which do not materially extend the useful lives of
the assets are charged to expense as incurred. The cost and accumulated
depreciation of assets retired or sold are removed from the respective accounts
and any gain or loss is recognized in operations. The estimated useful lives of
fixed assets are as follows:
Computer
equipment
|
3
years
|
Machinery
and equipment
|
5-7
years
|
Furniture
and fixtures
|
5
years
|
Leasehold
improvements
|
Earlier
of life of improvement or
lease
|
Impairment
of Long-Lived Assets
We
periodically assess the recoverability of fixed assets and evaluate such assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In accordance with Statement
of Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” if indicators of impairment exist, we assess the
recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through undiscounted future
operating cash flows. If the carrying amount is not recoverable, we measure the
amount of any impairment by comparing the carrying value of the asset to the
present value of the expected future cash flows associated with the use of the
asset. No impairments occurred as of December 31, 2006, 2007 or
2008.
Income
Taxes
We
account for income taxes in accordance with the provisions of Statement of
Financial Accounting Standards No.109 (“FAS 109”) “Accounting for Income Taxes”
which requires that we recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined on the basis of the difference between the tax basis
of assets and liabilities and their respective financial reporting amounts
(“temporary differences”) at enacted tax rates in effect for the years in which
the temporary differences are expected to reverse. A valuation allowance is
established for deferred tax assets for which realization is
uncertain.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
In
connection with the adoption of Statement of Financial Accounting Standards No.
123 (revised 2004) (“FAS 123(R)”) “Share-Based Payment” which is a revision of
Statement of Financial Accounting Standards No. 123 (“FAS 123”)
“Accounting for Stock Based Compensation” (see Note 3), we have made a policy
decision related to intra-period tax allocation, to account for utilization of
windfall tax benefits based on provisions in the tax law that identify the
sequence in which amounts of tax benefits are used for tax purposes (i.e., tax law
ordering).
Uncertain
tax positions are accounted for in accordance with FASB Interpretation No. 48
(“FIN 48”) “Accounting for Uncertainty in Income Taxes - an Interpretation of
FASB Statement 109” which was adopted on January 1, 2007. FIN 48 prescribes a
comprehensive model for the manner in which a company should recognize, measure,
present and disclose in its financial statements all material uncertain tax
positions that we have taken or expect to take on a tax return. FIN 48 applies
to income taxes and is not intended to be applied by analogy to other taxes,
such as sales taxes, value-add taxes, or property taxes. We review our nexus in
various tax jurisdictions and our tax positions related to all open tax years
for events that could change the status of its FIN 48 liability, if any, or
require an additional liability to be recorded. Such events may be the
resolution of issues raised by a taxing authority, expiration of the statute of
limitations for a prior open tax year or new transactions for which a tax
position may be deemed to be uncertain. Those positions, for which management’s
assessment is that there is more than a 50 percent probability of sustaining the
position upon challenge by a taxing authority based upon its technical merits,
are subjected to the measurement criteria of FIN 48. We record the largest
amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement with a taxing authority having full knowledge of all
relevant information. Any FIN 48 liabilities for which we expect to make cash
payments within the next twelve months are classified as “short term.” In the
event that we conclude that we are subject to interest and/or penalties arising
from uncertain tax positions, we will record interest and penalties as a
component of income taxes (see Note 14).
Risks
and Uncertainties
We have
to date generated only modest amounts of product and royalty revenue and except
for RELISTOR, we have no products approved by the FDA for marketing. There can
be no assurance that our research and development will be successfully
completed, that any products developed will obtain necessary marketing approval
by regulatory authorities or that any approved products will be commercially
viable. In addition, we operate in an environment of rapid change in technology,
and we are dependent upon the continued services of our current employees,
consultants and subcontractors. In accordance with the Wyeth Collaboration
Agreement and the Ono License, we have transferred to Wyeth and Ono the
responsibility for manufacturing RELISTOR for clinical and commercial use in
both bulk and finished form in their respective territories. Wyeth and Ono may
not be able to fulfill its manufacturing obligations, either on its own or
through third-party suppliers. For the years ended December 31, 2006, 2007 and
2008, the primary sources of our revenues were Wyeth and research grants and
contract revenues from the NIH. There can be no assurance that revenues from
Wyeth, Ono or from research grants and contract will continue. Beginning on
January 1, 2006, we were no longer reimbursed by PSMA LLC for our services and
we did not recognize revenue from PSMA LLC for the quarter ended March 31, 2006.
Beginning in the second quarter of 2006, PSMA LLC became our wholly owned
subsidiary and, accordingly, we no longer recognize revenue from PSMA LLC.
Substantially all of our accounts receivable at December 31, 2007 and 2008 were
from the above-named sources.
Comprehensive
Loss
Comprehensive
loss represents the change in net assets of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Our comprehensive loss includes net loss adjusted for the change in net
unrealized gain or loss on marketable securities. The disclosures required by
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income” for the years ended December 31, 2006, 2007 and 2008 have been included
in the Statements of Stockholders’ Equity and Comprehensive Loss. There was no
income tax expense/benefit allocated to any component of Other Comprehensive
Loss (see Note 14).
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Impact
of Recently Issued Accounting Standards
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“FAS
161”) “Disclosures about Derivative Instruments and Hedging Activities – an
amendment to FASB Statement No. 133” which is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures. The enhanced disclosure conveys the purpose of derivative
use to enable investors a better understanding of their effects on an entity’s
financial position, financial performance, and cash flows. Entities are required
to provide enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years beginning after November 15, 2008, with early
adoption encouraged. We do not expect the effect of the adoption of FAS 161 to
have a material effect on our financial position or results of
operations.
In
October 2008, the FASB issued FSP No. FAS 157-3 (“FSP FAS 157-3”), “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active.” FSP FAS 157-3 clarifies the application of FAS 157 in a market that is
not active and illustrates how an entity should determine fair value when the
market for a financial asset is not active. FSP FAS 157-3 provides guidance on
how an entity’s own assumptions about cash flows and discount rates should be
considered when measuring fair value when relevant market data do not exist, how
observable market information in an inactive or dislocated market affects fair
value measurements and how the use of broker and pricing service quotes should
be considered when applying fair value measurements. FSP FAS 157-3 is effective
immediately as of September 30, 2008 and for all interim and annual periods
thereafter. The adoption of FSP FAS 157-3 did not have a material effect on our
financial position or results of operations.
In June
2008, the FASB issued FSP EITF Issue No. 03-6-1 (“FSP EITF 03-6-1”) “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” FSP EITF 03-6-1 requires entities to allocate
earnings to unvested and contingently issuable share-based payment awards that
have non-forfeitable rights to dividends or dividend equivalents when
calculating EPS and also present both basic EPS and diluted EPS pursuant to the
two-class method described in FAS 128. FSP EITF 03-6-1 is effective January 1,
2009 and requires retrospective application. We are currently evaluating the
impact this FSP will have on our financial statements.
3.
Share-Based Payment Arrangements
On
January 1, 2006, we adopted FAS 123(R) which supersedes APB Opinion No.
25 (“APB 25”) “Accounting for Stock Issued to Employees,” and amends
Statement of Financial Accounting Standards No. 95 “Statement of Cash Flows.”
Our share-based payment arrangements with employees include non-qualified stock
options, restricted stock and shares issued under Employee Stock Purchase Plans,
which are compensatory under FAS 123(R), as described below. We account for
share-based payment arrangements with non-employees, including non-qualified
stock options and restricted stock, in accordance with EITF Issue No. 96-18
“Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Connection with Selling, Goods or Services” which accounting is
unchanged as a result of the our adoption of FAS 123(R).
We
adopted FAS 123(R) using the modified prospective application, under which
compensation cost for all share-based awards that were unvested as of the
adoption date and those newly granted or modified after the adoption date are
being recognized over the related requisite service period, usually the vesting
period for awards with a service condition. We have made an accounting policy
decision to use the straight-line method of attribution of compensation expense,
under which the grant date fair value of share-based awards is recognized on a
straight-line basis over the total requisite service period for the total award.
Upon adoption of FAS 123(R), we eliminated $4,498 of unearned compensation,
related to share-based awards granted prior to the adoption date that were
unvested as of January 1, 2006, against additional paid-in capital. The
cumulative effect of adjustments upon adoption of FAS 123(R) was not material.
Compensation expense recorded on a pro forma basis for periods prior to adoption
of FAS 123(R) is not revised and is not reflected in the financial statements of
those prior periods.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
We have
adopted four stock incentive plans, the 1989 Non-Qualified Stock Option Plan,
the 1993 Stock Option Plan, the 1996 Amended Stock Incentive Plan and the 2005
Stock Incentive Plan (the “Plans”). Under each of these Plans as amended, a
maximum of 375, 750, 5,000 and 3,950 shares of common stock, respectively, are
available for awards to employees, consultants, directors and other individuals
who render services to Progenics (collectively, “Awardees”). The Plans contain
certain anti-dilution provisions in the event of a stock split, stock dividend
or other capital adjustment as defined. The 1989 Plan and 1993 Plan provide for
the Board, or the Compensation Committee (“Committee”) of the Board, to grant
stock options to Awardees and to determine the exercise price, vesting term and
expiration date. The 1996 Plan and the 2005 Plan provide for the Board or
Committee to grant to Awardees stock options, stock appreciation rights,
restricted stock, performance awards or phantom stock, as defined (collectively,
“Awards”). The Committee is also authorized to determine the term and vesting of
each Award and the Committee may in its discretion accelerate the vesting of an
Award at any time. Stock options granted under the Plans generally vest pro rata
over four to ten years and have terms of ten to twenty years. Restricted stock
issued under the 1996 Plan or 2005 Plan usually vests annually over a four year
period, unless specified otherwise by the Committee. The exercise price of
outstanding non-qualified stock options is usually equal to the fair value of
our common stock on the date of grant. The exercise price of non-qualified stock
options granted from the 2005 Plan and incentive stock options (“ISO”) granted
from the Plans may not be lower than the fair value of our common stock on the
dates of grant. At December 31, 2006, 2007 and 2008, all outstanding stock
options were non-qualified options. The 1989, 1993 and 1996 Plans terminated in
April 1994, December 2003 and October 2006, respectively, and the 2005 Plan will
terminate in April 2015; options granted before termination of the Plans will
continue under the respective Plans until exercised, cancelled or
expired.
We apply
a forfeiture rate to the number of unvested awards in each reporting period in
order to estimate the number of awards that are expected to vest. Estimated
forfeiture rates are based upon historical data on vesting behavior of
employees. We adjust the total amount of compensation cost recognized for each
award, in the period in which each award vests, to reflect the actual
forfeitures related to that award.
Under FAS
123(R), the fair value of each option award granted under the Plans is estimated
on the date of grant using the Black-Scholes option pricing model with the input
assumptions noted in the following table. Ranges of assumptions for inputs are
disclosed where the value of such assumptions varied during the related period.
Historical volatilities are based upon daily quoted market prices of our common
stock on The NASDAQ Stock Market LLC over a period equal to the expected term of
the related equity instruments. We rely only on historical volatility since it
provides the most reliable indication of future volatility. Future volatility is
expected to be consistent with historical; historical volatility is calculated
using a simple average calculation method; historical data is available for the
length of the option’s expected term and a sufficient number of price
observations are used consistently. Since our stock options are not traded on a
public market, we do not use implied volatility. For the year ended December 31,
2008 and 2007, expected term was calculated based upon historical data related
to exercise and post-termination cancellation activity. Accordingly, for grants
made to employees and officers (excluding our Chief Executive Officer) and
directors, we are using expected terms of 5.33 and 7.30 years, and 5.25 and 7.5
years, respectively. Expected term for options granted to non-employee
consultants was ten years, which is the contractual term of those options. The
expected term of options granted in 2006 was based upon the simplified method of
calculating expected term, as detailed in SAB No. 107 and represents the period
of time that options granted are expected to be outstanding. Accordingly, we
used an expected term of 6.5 years based upon the vesting period of the
outstanding options of four or five years and a contractual term of ten years.
We have never paid dividends and do not expect to pay dividends in the future.
Therefore, our dividend rate is zero. The risk-free rate for periods within the
expected term of the option is based on the U.S. Treasury yield curve in effect
at the time of grant.
|
|
For
the Years Ended
December
31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
Expected
volatility
|
|
69%
- 94%
|
|
50%
- 89%
|
|
66%
- 91%
|
Expected
dividends
|
|
zero
|
|
zero
|
|
zero
|
Expected
term (years)
|
|
6.5
|
|
5.25
- 10
|
|
5.33
- 10
|
Weighted
average expected term (years)
|
|
6.5
|
|
6.90
|
|
6.78
|
Risk-free
rate
|
|
4.56%
- 5.06%
|
|
3.88%
- 4.93%
|
|
1.69%
- 3.79%
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
A summary
of option activity under the Plans as of December 31, 2008 and changes during
the year then ended is presented below:
Options
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (Yr.)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
4,708
|
|
|
$ |
18.14
|
|
|
|
|
|
|
|
Granted
|
|
|
599
|
|
|
|
16.01
|
|
|
|
|
|
|
|
Exercised
|
|
|
(172)
|
|
|
|
7.25
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(684)
|
|
|
|
14.86
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
4,451
|
|
|
$ |
18.78
|
|
|
|
5.81
|
|
|
$ |
1,104
|
|
Exercisable
at December 31, 2008
|
|
|
3,247
|
|
|
$ |
18.06
|
|
|
|
4.88
|
|
|
$ |
1,101
|
|
The
weighted average grant-date fair value of options granted under the Plans during
the years ended December 31, 2006, 2007 and 2008 was $19.32, $16.18 and $10.09,
respectively. The total intrinsic value of options exercised during the years
ended December 31, 2006, 2007 and 2008 was $6,591, $3,766 and $969,
respectively.
The
options granted under the Plans, described above, include 33, 113, 38, 75, 145
and 113 non-qualified stock options granted to our Chief Executive Officer on
July 1, 2002, 2003, 2004 and 2005, on July 3, 2006 and on July 2, 2007,
respectively, which cliff vest after nine years and eleven months from the
respective grant dates. The July 1, 2002, 2003 and 2005 awards were fully
vested. Vesting of a defined portion of each award will occur earlier if a
defined performance condition is achieved; more than one condition may be
achieved in any period. Upon adoption of FAS 123(R) on January 1, 2006, 21,
zero, 8 and 36 options were unvested under the 2002, 2003, 2004 and 2005 awards,
respectively. In accordance with FAS 123(R), at the end of each reporting
period, we estimate the probability of achievement of each performance condition
and use those probabilities to determine the requisite service period of each
award. The requisite service period for the award is the shortest of the
explicit or implied service periods. In the case of the Chief Executive
Officer’s options, the explicit service period is nine years and eleven months
from the respective grant dates. The implied service periods related to the
performance conditions are the estimated times for each performance condition to
be achieved. Thus, compensation expense will be recognized over the shortest
estimated time for the achievement of performance conditions for that award
(assuming that the performance conditions will be achieved before the cliff
vesting occurs). To the extent that, for each of the 2004, 2006 and 2007 awards,
it is probable that 100% of the remaining unvested award will vest based on
achievement of the remaining performance conditions, compensation expense will
be recognized over the estimated periods of achievement. To the extent that it
is probable that less than 100% of the award will vest based upon remaining
performance conditions, the shortfall will be recognized through the remaining
period to nine years and eleven months from the grant date (i.e., the remaining service
period). Changes in the estimate of probability of achievement of any
performance condition will be reflected in compensation expense of the period of
change and future periods affected by the change. On July 1, 2008, we granted
options and restricted stock to our Chief Executive Officer. The options have an
exercise price equal to the closing price on our common stock on the date of
grant while the restricted stock awards do not include an exercise price. Both
options and restricted stock granted vest on the basis of the achievement of
specified performance based milestones or market conditions. Compensation
expense, for the July 1, 2008 award to our Chief Executive Officer, will be
recognized over the shortest estimated time for the achievement of the
performance or market conditions. The awards will not vest unless one of the
milestones is achieved or the market condition is met. Changes in the estimate
of probability of achievement of any performance or market condition will be
reflected in compensation expense of the period of change and future periods
affected by the change.
At
December 31, 2008, the estimated requisite service periods for the 2004, 2006
and 2007 awards, described above, were 1.5, 7.5 and 8.5 years, respectively. For
the year ended December 31, 2008, 33, 6, 7 and 56 options vested under the 2002,
2004, 2006 and 2007 awards, respectively, which resulted in compensation expense
of $17, $7, $607 and $514, respectively. The reduction in compensation expense
recognized for the 2006 award resulted from a change in the estimate of the
period of vesting of the related performance milestones, as described above.
Prior to the adoption of FAS 123(R), these awards were accounted for as variable
awards under APB 25 and, therefore, compensation expense, based on the intrinsic
value of the vested awards on each reporting date, was recognized in our
financial statements.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
A summary
of the status of our restricted stock awarded under the Plans which has not yet
vested as of December 31, 2008 and changes during the year then ended is
presented below:
Restricted
Stock Awards
|
|
Shares
|
|
Weighted
Average Grant-Date
Fair
Value
|
|
|
|
|
|
Nonvested
at January 1, 2008
|
|
523
|
|
$22.35
|
Granted
|
|
264
|
|
14.37
|
Vested
|
|
(174)
|
|
21.74
|
Forfeited
|
|
(47)
|
|
22.49
|
Nonvested
at December 31, 2008
|
|
566
|
|
$18.81
|
During
1993, we adopted an Executive Stock Option Plan (the “Executive Plan”), under
which a maximum of 750 shares of common stock, adjusted for stock splits, stock
dividends and other capital adjustments, are available for stock option awards.
Awards issued under the Executive Plan may qualify as ISO’s, as defined by the
Internal Revenue Code, or may be granted as non-qualified stock options. Under
the Executive Plan, our Board of Directors may award options to senior executive
employees (including officers who may be Board of Directors’ members) of
Progenics. The Executive Plan terminated on December 15, 2003; any options
outstanding as of the termination date shall remain outstanding until such
option expires in accordance with the terms of the respective grant. During
December 1993, the Board of Directors awarded a total of 750 stock options under
the Executive Plan to our current Chief Executive Officer, of which 665 were
non-qualified options (“NQOs”) and 85 were ISO’s. The ISO’s have been exercised
in December 1998. The NQOs have a term of 14 years and entitle the officer to
purchase shares of common stock at $5.33 per share, which represented the
estimated fair market value, of our common stock at the date of grant, as
determined by the Board of Directors. As of December 31, 2007, there were no
outstanding options under the Executive Plan. The total intrinsic value of NQOs
under the Executive Plan exercised during the years ended December 31, 2006 and
2007 was $4,662 and $4,402, respectively.
Our two
employee stock purchase plans (the “Purchase Plans”), the 1998 Employee Stock
Purchase Plan (the “Qualified Plan”) and the 1998 Non-Qualified Employee
Purchase Plan (the “Non-Qualified Plan”), as amended, provide for the issuance
of up to 2,400 and 600 shares of common stock, respectively. The Purchase Plans
provide for the grant to all employees of options to use an amount equal to up
to 25% of their quarterly compensation, as such percentage is determined by the
Board of Directors prior to the date of grant, to purchase shares of our common
stock at a price per share equal to the lesser of the fair market value of the
common stock on the date of grant or 85% of the fair market value on the date of
exercise. Options are granted automatically on the first day of each fiscal
quarter and expire six months after the date of grant. The Qualified Plan is not
available to employees owning more than five percent of the common stock and
imposes certain other quarterly limitations on the option grants. Options under
the Non-Qualified Plan are granted to the extent that option grants are
restricted under the Qualified Plan.
The fair
value of shares purchased under the Purchase Plans is estimated on the date of
grant in accordance with FASB Technical Bulletin No. 97-1 “Accounting under
Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back
Option,” using the same option valuation model used for options granted under
the Plans, except that the assumptions noted in the following table were used
for the Purchase Plans:
|
|
For
the Years Ended
December
31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
Expected
volatility
|
|
37%
- 43%
|
|
40%
- 46%
|
|
83%
- 170%
|
Expected
dividends
|
|
zero
|
|
zero
|
|
zero
|
Expected
term
|
|
6
months
|
|
6
months
|
|
6
months
|
Risk-free
rate
|
|
3.25%
- 4.75%
|
|
3.91%
- 5.10%
|
|
0.14%
- 2.74%
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Purchases
of common stock under the Purchase Plans during the years ended December 31,
2006, 2007 and 2008 are summarized as follows:
|
Qualified
Plan
|
|
Non-Qualified
Plan
|
|
Shares
Purchased
|
|
Price
Range
|
|
Weighted
Average
Grant-Date Fair Value
|
|
Shares
Purchased
|
|
Price
Range
|
|
Weighted
Average
Grant-Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
126
|
|
$17.80
- $25.84
|
|
$3.30
|
|
27
|
|
$18.61
- $25.84
|
|
$3.25
|
2007
|
179
|
|
$16.27
- $23.46
|
|
$3.41
|
|
45
|
|
$17.80
- $23.46
|
|
$3.43
|
2008
|
538
|
|
$4.26
- $15.32
|
|
$4.44
|
|
127
|
|
$6.07
- $15.32
|
|
$4.83
|
The total
compensation expense of shares, granted to both employees and non-employees,
under all of our share-based payment arrangements that was recognized in
operations during the years ended December 31, 2006, 2007 and 2008
was:
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Recognized
as:
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
$ |
5,814 |
|
|
$ |
7,104 |
|
|
$ |
7,241 |
|
General
and Administrative
|
|
|
6,840 |
|
|
|
8,202 |
|
|
|
6,892 |
|
Total
|
|
$ |
12,654 |
|
|
$ |
15,306 |
|
|
$ |
14,133 |
|
No tax
benefit was recognized related to such compensation cost because we had a net
loss for the periods presented and the related deferred tax assets were fully
offset by valuation allowances. Accordingly, no amounts related to windfall tax
benefits have been reported in cash flows from operations or cash flows from
financing activities for the periods presented.
As of
December 31, 2008, there was $15.1 million, $8.7 million and $0.07 million of
total unrecognized compensation cost related to nonvested stock options under
the Plans, the nonvested shares and the Purchase Plans, respectively. Those
costs are expected to be recognized over weighted average periods of 2.6 years,
1.9 years and 0.04 years, respectively. Cash received from exercises under all
share-based payment arrangements for the year ended December 31, 2008 was $6.5
million. No tax benefit was realized for the tax deductions from those option
exercises of the share-based payment arrangements because we had a net loss for
the period and the related deferred tax assets were fully offset by a valuation
allowance. We issue new shares of our common stock upon share option exercise
and share purchase.
In
applying the treasury stock method for the calculation of diluted EPS, amounts
of unrecognized compensation expense and windfall tax benefits are required to
be included in the assumed proceeds in the denominator of the diluted earnings
per share calculation unless they are anti-dilutive. We incurred a net loss for
the years ended December 31, 2006, 2007 and 2008 and, therefore, such amounts
have not been included for those periods in the calculation of diluted EPS since
they would be anti-dilutive. Accordingly, basic and diluted EPS are the same for
those periods. We have made an accounting policy decision to calculate windfall
tax benefits/shortfalls for purposes of diluted EPS calculations, excluding the
impact of pro forma deferred tax assets. This policy decision will apply when we
have net income.
4.
Fair Value Measurements and Marketable Securities
Progenics
considers its marketable securities to be “available-for-sale,” as defined by
FAS 115 and, accordingly, unrealized holding gains and losses are excluded from
operations and reported as a net amount in a separate component of stockholders’
equity (see Note 2). Our available-for-sale investment portfolio consists of
marketable securities, which include money market funds, corporate debt
securities, securities of government-sponsored entities and auction rate
securities, and is recorded at fair value in the accompanying Consolidated
Balance Sheets.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Marketable
securities consisted of the following:
|
|
December
31,
2007
|
|
|
December
31,
2008
|
|
Short-term
|
|
|
|
|
|
|
Corporate debt securities and securities of government-sponsored
entities
|
|
$ |
81,170 |
|
|
$ |
63,127 |
|
Auction rate securities
|
|
|
38,830 |
|
|
|
- |
|
Total
short-term marketable securities
|
|
|
120,000 |
|
|
|
63,127 |
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Corporate debt securities and securities of government-sponsored
entities
|
|
|
39,947 |
|
|
|
18,002 |
|
Auction rate securities
|
|
|
- |
|
|
|
4,059 |
|
Total
long-term marketable securities
|
|
|
39,947 |
|
|
|
22,061 |
|
|
|
|
|
|
|
|
|
|
Total
marketable securities
|
|
$ |
159,947 |
|
|
$ |
85,188 |
|
The
following table presents our available-for-sale investments measured at fair
value on a recurring basis as of December 31, 2008 classified by the FAS 157
valuation hierarchy (as previously discussed):
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
Description
|
|
Balance
at
December
31, 2008
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
43,859
|
|
$
|
43,859
|
|
$
|
-
|
|
$
|
-
|
Corporate
debt securities and securities of government-sponsored
entities
|
|
|
81,129
|
|
|
-
|
|
|
81,129
|
|
|
-
|
Auction
rate securities
|
|
|
4,059
|
|
|
-
|
|
|
-
|
|
|
4,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129,047
|
|
$
|
43,859
|
|
$
|
81,129
|
|
$
|
4,059
|
At
December 31, 2008, we hold $4.1 million in auction rate securities which are
classified as Level 3 (3% of total assets measured at fair value). Auction rate
securities are collateralized long-term instruments that provide liquidity
through a Dutch auction process that resets the applicable interest rate at
pre-determined intervals, typically every 7 to 35 days. Beginning in February
2008, auctions failed for certain of our auction rate securities because sell
orders exceeded buy orders, and we were unable to dispose of those securities at
auction. The funds associated with these failed auctions will not be accessible
until a successful auction occurs, the issuer calls or restructures the
security, the security matures and is paid or a buyer outside the auction
process emerges. The fair value of the auction rate securities we hold includes
$3.0 million of securities collateralized by student loan obligations subsidized
by the U.S. government and $1.1 million of investment company preferred stock,
and do not include mortgage-backed instruments. As of December 31, 2008, we have
received all scheduled interest payments on these securities, which, in the
event of auction failure, are reset according to the contractual terms in the
governing instruments.
The
valuation of auction rate securities we hold is based on Level 3 unobservable
inputs which consist of internal analysis of timing of expected future
successful auctions, collateralization of underlying assets of the security and
credit quality of the security. As a result of the estimated fair value, we have
determined a temporary impairment in the valuation of these securities of $0.3
million, recorded for the year ended December 31, 2008, which is reflected as a
part of other comprehensive loss on our balance sheet. These securities are held
“available-for-sale” in conformity with FAS 115 and the unrealized loss is
included in other comprehensive loss in the current period. Due to the
uncertainty related to the liquidity in the auction rate security market and
therefore when individual positions may be liquidated, we have classified these
auction rate securities as long-term assets on our balance
sheet.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
We
continue to monitor markets for our investments and consider its impact, if any,
on the fair market value of our investments. If the market conditions for our
investments do not recover, we may be required to record additional losses in
2009. We believe we will have the ability to hold any of our investments until
their markets recover. We do not anticipate having to sell these securities in
order to operate our business. We do not believe the carrying values of our
investments are other than temporarily impaired and therefore expect the
positions will eventually be liquidated without significant loss.
For those
financial instruments with significant Level 3 inputs (all of which are auction
rate securities), the following tables summarize the activities for the year
ended December 31, 2008:
|
|
Fair
Value Measurements Using Significant
Unobservable
Inputs
(Level
3)
|
|
Description
|
|
For
the Year Ended
December
31, 2008
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
- |
|
Transfers
into Level 3
|
|
|
8,150 |
|
Total
realized/unrealized gains (losses)
|
|
|
|
|
Included
in net loss
|
|
|
- |
|
Included
in comprehensive income (loss)
|
|
|
(316 |
) |
Settlements
|
|
|
(3,775 |
) |
Balance
at end of period
|
|
$ |
4,059 |
|
Total
amount of unrealized gains (losses) for the period included in other
comprehensive loss attributable to the change in fair market value of
related assets still held at the reporting date
|
|
$ |
(316 |
) |
The
following table summarizes the amortized cost basis, the aggregate fair value
and gross unrealized holding gains and losses at December 31, 2007 and
2008:
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
Holding
|
|
|
|
Cost
Basis
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Net
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
less than one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$ |
76,853 |
|
|
$ |
76,892 |
|
|
$ |
84 |
|
|
$ |
(45 |
) |
|
$ |
39 |
|
Government-sponsored
entities
|
|
|
4,295 |
|
|
|
4,278 |
|
|
|
- |
|
|
|
(17 |
) |
|
|
(17 |
) |
Maturities
between one and five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
|
39,963 |
|
|
|
39,947 |
|
|
|
64 |
|
|
|
(80 |
) |
|
|
(16 |
) |
Maturities
greater than ten years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
27,130 |
|
|
|
27,130 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Investments
without stated maturity dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
11,700 |
|
|
|
11,700 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
159,941 |
|
|
$ |
159,947 |
|
|
$ |
148 |
|
|
$ |
(142 |
) |
|
$ |
6 |
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
Holding
|
|
|
|
Cost
Basis
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Net
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
less than one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$ |
63,982 |
|
|
$ |
63,127 |
|
|
$ |
114 |
|
|
$ |
(969 |
) |
|
$ |
(855 |
) |
Maturities
between one and five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
17,129 |
|
|
|
16,995 |
|
|
|
71 |
|
|
|
(205 |
) |
|
|
(134 |
) |
Government-sponsored entities
|
|
|
999 |
|
|
|
1,007 |
|
|
|
8 |
|
|
|
- |
|
|
|
8 |
|
Maturities
greater than ten years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
3,200 |
|
|
|
2,944 |
|
|
|
- |
|
|
|
(256 |
) |
|
|
(256 |
) |
Investments
without stated maturity dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
1,175 |
|
|
|
1,115 |
|
|
|
- |
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
$ |
86,485 |
|
|
$ |
85,188 |
|
|
$ |
193 |
|
|
$ |
(1,490 |
) |
|
$ |
(1,297 |
) |
Progenics’
computes the cost of its investments on a specific identification basis. Such
cost includes the direct costs to acquire the securities, adjusted for the
amortization of any discount or premium.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
The
following table shows the gross unrealized losses and fair value of Progenics’
marketable securities with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position, at December 31, 2007 and 2008.
At
December 31, 2007:
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
Description of Securities
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$ |
50,511 |
|
|
$ |
(118 |
) |
|
$ |
9,479 |
|
|
$ |
(7 |
) |
|
$ |
59,990 |
|
|
$ |
(125 |
) |
Government-sponsored
entities
|
|
|
4,278 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
4,278 |
|
|
|
(17 |
) |
Total
|
|
$ |
54,789 |
|
|
$ |
(135 |
) |
|
$ |
9,479 |
|
|
$ |
(7 |
) |
|
$ |
64,268 |
|
|
$ |
(142 |
) |
At
December 31, 2008:
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
Description of Securities
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$ |
57,567 |
|
|
$ |
(1,174 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
57,567 |
|
|
$ |
(1,174 |
) |
Auction
rate securities
|
|
|
4,059 |
|
|
|
(316 |
) |
|
|
|
|
|
|
|
|
|
|
4,059 |
|
|
|
(316 |
) |
Total
|
|
$ |
61,626 |
|
|
$ |
(1,490 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
61,626 |
|
|
$ |
(1,490 |
) |
Corporate debt securities.
Progenics’ investments in corporate debt securities with unrealized
losses at December 31, 2008 include 34 securities with maturities of less than
one year ($46,028 of the total fair value and $969 of the total unrealized
losses in corporate debt securities) and 9 securities with maturities between
one and two years ($11,539 of the total fair value and $205 of the total
unrealized losses in corporate debt securities). The severity of the unrealized
losses (fair value is approximately 0.00563 percent to 17.67 percent less than
cost) and duration of the unrealized losses (weighted average of 6.98 months)
correlate with the short maturities of the majority of these investments. The
increase in unrealized losses in 2008 was attributable to our purchase of
corporate debt securities, trading at a premium in early 2008, which declined in
market value at the end of 2008. Our corporate debt securities are purchased by
third-party brokers in accordance with its investment policy guidelines. Our
brokerage account requires that all corporate debt securities be held to
maturity unless authorization is obtained from us to sell earlier. In fact,
Progenics’ has a history of holding corporate debt securities to maturity.
Progenics’, therefore, considers that it has the intent and ability to hold any
corporate debt securities with unrealized losses until a recovery of fair value,
which may be maturity and it does not consider these marketable securities to be
other-than-temporarily impaired at December 31, 2008.
Auction rate securities. The
unrealized losses on Progenics’ investments in auction rate securities during a
period of less than 12 months were the result of an internal analysis of timing
of expected future successful auctions, collateralization of underlying assets
of the security and credit quality of the security. The severity of the
unrealized losses (fair value is approximately 6 percent to 8 percent less than
cost) and duration of the unrealized losses (weighted average of 9.25 months)
correlate with the short maturities of these investments. Similar to corporate
debt securities, discussed above, Progenics’ considers that it has the intent
and ability to hold any investments in auction rate securities with unrealized
losses until a recovery of fair value, which may be maturity or a successful
auction and it does not consider these marketable securities to be
other-than-temporarily impaired at December 31, 2008.
5.
Accounts Receivable
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
National
Institutes of Health
|
|
$ |
1,956 |
|
|
$ |
1,107 |
|
Royalties
|
|
|
- |
|
|
|
229 |
|
Other
|
|
|
39 |
|
|
|
1 |
|
Total
|
|
$ |
1,995 |
|
|
$ |
1,337 |
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
6.
Fixed Assets
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
Computer
equipment
|
|
$ |
1,935 |
|
|
$ |
2,335 |
|
Machinery
and equipment
|
|
|
11,695 |
|
|
|
13,161 |
|
Furniture
and fixtures
|
|
|
726 |
|
|
|
750 |
|
Leasehold
improvements
|
|
|
10,448 |
|
|
|
10,546 |
|
Construction
in progress
|
|
|
874 |
|
|
|
907 |
|
|
|
|
25,678 |
|
|
|
27,699 |
|
Less,
accumulated depreciation and amortization
|
|
|
(12,167 |
) |
|
|
(16,628 |
) |
Total
|
|
$ |
13,511 |
|
|
$ |
11,071 |
|
At
December 31, 2007, $5.7 million, $0.9 million and $0.7 million of leasehold
improvements were being amortized over periods of 2.3 – 5.8 years, 4.7 years and
8.5 years, respectively, under leases with terms through December 31, 2009, June
29, 2012 and December 31, 2014, respectively. At December 31, 2008, $5.8
million, $0.9 million and $0.7 million of leasehold improvements were being
amortized over periods of 1.0 – 5.8 years, 4.0 – 4.7 years and 8.5 years,
respectively, under the same respective leases.
7.
Accounts Payable and Accrued Expenses
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
Accounts
payable
|
|
$ |
1,158 |
|
|
$ |
899 |
|
Accrued
consulting and clinical trial costs
|
|
|
10,848 |
|
|
|
3,556 |
|
Accrued
payroll and related costs
|
|
|
1,489 |
|
|
|
1,093 |
|
Legal
and professional fees
|
|
|
1,127 |
|
|
|
925 |
|
Other
|
|
|
143 |
|
|
|
23 |
|
Total
|
|
$ |
14,765 |
|
|
$ |
6,496 |
|
8.
Stockholders’ Equity
We are
authorized to issue 40,000 shares of common stock, par value $.0013 (“Common
Stock”), and 20,000 shares of preferred stock, par value $.001. The Board of
Directors has the authority to issue common and preferred shares, in series,
with rights and privileges as determined by the Board of Directors.
On
September 25, 2007, we completed a public offering of 2.6 million shares of our
Common Stock, pursuant to a shelf registration statement that had been filed
with the SEC in 2006, which had registered 4.0 million shares of our Common
Stock. We received proceeds of $57.3 million, or $22.04 per share, which was net
of underwriting discounts and commissions of approximately $2.9 million, and
paid approximately $0.2 million in other offering expenses.
In
connection with the adoption of FAS 123(R) on January 1, 2006, we eliminated
$4,498 of unearned compensation, related to share-based awards granted prior to
the adoption date that were unvested as of that date, against additional
paid-in-capital.
On April
24, 2008, our Board of Directors approved a share repurchase program to acquire
up to $15.0 million of our outstanding common shares, funding for which comes
from the $15.0 million milestone payment we received from Wyeth related to U.S.
marketing approval for RELISTOR. Purchases under the program are made at our
discretion subject to market conditions in the open-market or otherwise, and in
accordance with the regulations of the SEC, including Rule 10b-18. During the
year ended December 31, 2008, we have repurchased 200,000 of our outstanding
common shares for a total of $2.7 million. Purchases may be discontinued at any
time. Reacquired shares will be held in treasury until redeployed or retired. We
have $12.3 million remaining available for purchases under the
program.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
|
9.
License Agreements with Wyeth Pharmaceuticals and Ono
Pharmaceutical
|
On
December 23, 2005, we entered into our Collaboration Agreement with Wyeth for
the purpose of developing and commercializing RELISTOR. The Wyeth Collaboration
Agreement involves three formulations of RELISTOR: (i) a subcutaneous
formulation to be used in patients with OIC, (ii) an intravenous formulation to
be used in patients with POI and (iii) an oral formulation to be used in
patients with OIC.
The Wyeth
Collaboration Agreement establishes the JSC and JDC, each with an equal number
of representatives from both Wyeth and us. The JSC is responsible for
coordinating the companies’ key activities, while the JDC oversees, coordinates
and expedites the development of RELISTOR by Wyeth and us. A JCC, composed of
company representatives in number and function according to our respective
responsibilities, facilitates open communication between Wyeth and us on
commercialization matters.
We have
assessed the nature of our involvement with the committees. Our involvement in
the JSC and JDC is one of several obligations to develop the subcutaneous and
intravenous formulations of RELISTOR through regulatory approval in the U.S. We
have combined the committee obligations with the other development obligations
and are accounting for these obligations during the development phase as a
single unit of accounting. After the period during which we have developmental
responsibilities, however, we have assessed that the nature of our involvement
with the committees will be a right, rather than an obligation. Our assessment
is based upon the fact that we negotiated to be on the committees as an
accommodation for our granting of the license for RELISTOR to Wyeth. Wyeth has
been granted by us an exclusive license (even as to us) to the technology and
know-how regarding RELISTOR and has been assigned the agreements for the
manufacture of RELISTOR by third parties. During that period, the activities of
the committees will be focused on Wyeth’s development and commercialization
obligations.
Under the
Wyeth Collaboration Agreement, we granted to Wyeth an exclusive, worldwide
license, even as to us, to develop and commercialize RELISTOR. Wyeth returned
the rights with respect to Japan to us in connection with its election not to
develop RELISTOR there and the transaction with Ono discussed in Note 1, above.
We are responsible for developing the subcutaneous and intravenous formulations
in the U.S. until they receive regulatory approval, while Wyeth is responsible
for these formulations outside the U.S. other than Japan. Wyeth is also
responsible for the development of the oral formulation worldwide excluding
Japan. We have transferred to Wyeth all existing supply agreements with third
parties for RELISTOR and have sublicensed intellectual property rights to permit
Wyeth to manufacture or have manufactured RELISTOR, during the development and
commercialization phases of the Wyeth Collaboration Agreement, in both bulk and
finished form for all products worldwide. We have no further manufacturing
obligations under the Collaboration. We have and will continue to transfer to
Wyeth all know-how, as defined, related to RELISTOR. Based upon our research and
development programs, such period will cease upon completion of our development
obligations under the Wyeth Collaboration Agreement.
In the
event the JSC approves for development any formulation of RELISTOR other than
subcutaneous, intravenous or oral or any other indication for a product using
any formulation of RELISTOR, Wyeth is obligated to be responsible for
development of such products as provided in the Wyeth Collaboration Agreement,
including conducting clinical trials and obtaining and maintaining regulatory
approval. Wyeth is also responsible for the commercialization of the
subcutaneous, intravenous and oral products, and any other methylnaltrexone
based products developed upon approval by the JSC, throughout the world
excluding Japan. Wyeth is obligated to pay all costs of commercialization of all
products, including manufacturing costs, and will retain all proceeds from the
sale of the products, subject to the royalties payable by Wyeth to us. Decisions
with respect to commercialization of any products developed under the Wyeth
Collaboration Agreement are to be made solely by Wyeth.
Wyeth
granted to us an option (the “Co-Promotion Option”) to enter into a Co-Promotion
Agreement to co-promote any of the products developed under the Wyeth
Collaboration Agreement, at any time, subject to certain conditions. We may
exercise this option on an annual basis. We did not exercise the option in
connection with the initial commercialization of RELISTOR, and as of December
31, 2008 have not determined when we will exercise it, if at all. The extent of
our co-promotion activities and the fee that we will be paid by Wyeth for these
activities will be established if, as and when we exercise our option. Wyeth
will record all sales of products worldwide (including those sold by us, if any,
under a Co-Promotion Agreement). Wyeth may terminate any Co-Promotion Agreement
if a top 15 pharmaceutical company acquires control of us. Our potential right
to commercialize any product, including our Co-Promotion Option, is not
essential to the usefulness of the already delivered products or services (i.e., our development
obligations) and our failure to fulfill our co-promotion obligations would not
result in a full or partial refund of any payments made by Wyeth to us or reduce
the consideration due to us by Wyeth or give Wyeth the right to reject the
products or services previously delivered by us.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
We are
recognizing revenue in connection with the Wyeth Collaboration Agreement under
the SAB 104 and will apply the Substantive Milestone Method (see Note 2). In
accordance with the EITF 00-21 all of our deliverables under the Wyeth
Collaboration Agreement, consisting of granting the license for RELISTOR,
transfer of supply contracts with third party manufacturers of RELISTOR,
transfer of know-how related to RELISTOR development and manufacturing, and
completion of development for the subcutaneous and intravenous formulations of
RELISTOR in the U.S., represent one unit of accounting since none of those
components has standalone value to Wyeth prior to regulatory approval of at
least one product; that unit of accounting comprises the development phase,
through regulatory approval, for the subcutaneous and intravenous formulations
in the U.S.
Within
five business days of execution of the Collaboration Agreement, Wyeth made a
non-refundable, non-creditable upfront payment of $60.0 million, for which we
deferred revenue at December 31, 2005. Subsequently, we are recognizing revenue
related to the upfront license payment over the period during which the
performance obligations, noted above, are being performed using the
proportionate performance method. We expect that period to extend through 2009.
We are recognizing revenue using the proportionate performance method since we
can reasonably estimate the level of effort required to complete our performance
obligations under the Wyeth Collaboration Agreement and such performance
obligations are provided on a best-efforts basis. Full-time equivalents are
being used as the measure of performance. Under the proportionate performance
method, revenue related to the upfront license payment is recognized in any
period as the percent of actual effort expended in that period relative to
expected total effort. The total effort expected is based upon the most current
budget and development plan which is approved by both us and Wyeth and includes
all of the performance obligations under the arrangement. Significant judgment
is required in determining the nature and assignment of tasks to be accomplished
by each of the parties and the level of effort required for us to complete our
performance obligations under the arrangement. The nature and assignment of
tasks to be performed by each party involves the preparation, discussion and
approval by the parties of a development plan and budget. Since we have no
obligation to develop the subcutaneous and intravenous formulations of RELISTOR
outside the U.S. or the oral formulation at all and have no significant
commercialization obligations for any product, recognition of revenue for the
upfront payment is not required during those periods, if they extend beyond the
period of our development obligations. If Wyeth terminates the Collaboration in
accordance with its terms, we will recognize any unamortized remainder of the
upfront payment at the time of the termination.
The
amount of the upfront license payment that we recognized as revenue for each
fiscal quarter prior to the third quarter of 2007 was based upon several revised
approved budgets, although the revisions to those budgets did not materially
affect the amount of revenue recognized in those periods. During the third
quarter of 2007, the estimate of our total remaining effort to complete our
development obligations was increased significantly based upon a revised
development budget approved by both us and Wyeth. As a result, the period over
which our obligations will extend, and over which the upfront payment will be
amortized, was extended from the end of 2008 to the end of 2009. Consequently,
the amount of revenue recognized from the upfront payment during the year ended
December 31, 2008 declined relative to that in the comparable period of
2007.
Beginning
in January 2006, costs for the development of RELISTOR incurred by Wyeth or us
are being paid by Wyeth. Wyeth has the right once annually to engage an
independent public accounting firm to audit expenses for which we have been
reimbursed during the prior three years. If the accounting firm concludes that
any such expenses have been understated or overstated, a reconciliation will be
made. We are recognizing as research and development revenue from collaborator,
amounts received from Wyeth for reimbursement of our development expenses for
RELISTOR as incurred under the development plan agreed to between us and Wyeth.
In addition to the upfront payment and reimbursement of our development costs,
Wyeth has made or will make the following payments to us, provided specific
milestones, including clinical, regulatory and sales events, are reached, and
taking in to account the modifications made in connection with the Ono
transaction discussed in Note 1, above: (i) development and sales milestones and
contingent payments, consisting of defined non-refundable, non-creditable
payments, totaling $334.0 million, in respect of clinical and regulatory events
and, for each form approved as a commercial product, combined annual worldwide
(excluding Japan) net sales, as defined, and (ii) sales royalties during each
calendar year during the royalty period, as defined, based on certain
percentages of net sales in the U.S. and worldwide (excluding Japan). Upon
achievement of defined substantive development milestones by us for the
subcutaneous and intravenous formulations, the milestone payments will be
recognized as revenue. Recognition of revenue for developmental contingent
events related to the oral formulation, which is the responsibility of Wyeth,
will be recognized as revenue when Wyeth achieves those events, if they occur
subsequent to completion by us of our development obligations, since we would
have no further obligations related to those products. Otherwise, if Wyeth
achieves any of those events before we have completed our development
obligations, recognition of revenue for the Wyeth contingent events will be
recognized over the period from receipt of the milestone payment to the
completion of our development obligations. All sales milestones will be
recognized as revenue when earned.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
During
the years ended December 31, 2006, 2007 and 2008, we recognized $18.8 million,
$16.4 million and $10.2 million, respectively, of revenue from the $60.0 million
upfront payment and $34.6 million, $40.1 million and $24.7 million,
respectively, as reimbursement for our out-of-pocket development costs,
including our labor costs. In October 2006, we earned a $5.0 million milestone
payment in connection with the start of a phase 3 clinical trial of intravenous
RELISTOR for the treatment of POI. In May 2007, April 2008 and July 2008, we
earned $9.0 million, $15.0 million and $10.0 million, respectively, in milestone
payments upon the submission and approval for review of applications for
marketing in the U.S. and European Union of the subcutaneous formulation of
RELISTOR in patients receiving palliative care, the FDA approval of subcutaneous
RELISTOR in the U.S. and the European approval of subcutaneous formulation of
RELISTOR, respectively. We considered those milestones to be substantive based
on (i) the significant degree of risk, at the inception of the Collaboration,
related to the conduct and successful completion of clinical trials and,
therefore, of not achieving the milestones, (ii) the amount of the payment
received relative to the significant costs incurred since inception of the Wyeth
Collaboration Agreement and amount of effort expended to achieve the milestones,
and (iii) the passage of 17, 28 and 31 months, respectively, from inception of
the Wyeth Collaboration Agreement to the achievement of those milestones.
Therefore, we recognized the milestone payments as revenue in the respective
periods in which the milestones were earned. As of December 31, 2008, relative
to the $60.0 million upfront license payment received from Wyeth, we have
recorded $14.6 million as deferred revenue – current, which is expected to be
recognized as revenue over the period of our development obligations relating to
RELISTOR. In addition, at December 31, 2008, we recorded $1.6 million as
deferred revenue - current, related to reimbursements from Wyeth for development
costs.
Royalty
revenue is recognized upon the sale of related products, provided that the
royalty amounts are fixed or determinable, collection of the related receivable
is reasonably assured and we have no remaining performance obligations under the
arrangement providing for the royalty. If royalties are received when we have
remaining performance obligations, they would be attributed to the services
being provided under the arrangement and, therefore, recognized as such
obligations are performed under either the proportionate performance or
straight-line methods, as applicable, and in accordance with the policies
above.
In
addition, during year ended December 31, 2008, we earned royalties of $665,
based on the net sales of subcutaneous RELISTOR, and we recognized $146 of
royalty income. As of December 31, 2008, we have recorded a cumulative total of
$519 as deferred revenue – current, which is expected to be recognized as
royalty income over the period of our development obligations relating to
RELISTOR. We incurred $67 of royalty costs and recognized $15 of royalty
expenses during the year ended December 31, 2008. As of December 31, 2008, we
recorded a cumulative total of $52 of deferred royalty costs from the royalty
costs incurred during the last three quarters of 2008. The $52 of deferred
royalty costs are expected to be recognized as royalty expense over the period
of our development obligations relating to RELISTOR.
The Wyeth
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period for any product. We may terminate the Wyeth Collaboration
Agreement at any time upon 90 days written notice to Wyeth upon Wyeth’s material
uncured breach (30 days in the case of breach of a payment obligation). Wyeth
may, with or without cause, terminate the Collaboration effective on or after
the second anniversary of the first U.S. commercial sale of RELISTOR, by
providing us with at least 360 days prior written notice. Wyeth may also
terminate the agreement (i) upon 30 days written notice following one or more
serious safety or efficacy issues that arise and (ii) upon 90 days written
notice of a material uncured breach by us. Upon termination of the Wyeth
Collaboration Agreement, the ownership of the license we granted to Wyeth will
depend on which party initiates the termination and the reason for the
termination.
In
October 2008, we entered into an exclusive license agreement with Ono under
which we licensed to Ono the rights to subcutaneous RELISTOR in Japan and under
that agreement, in November 2008, we received from Ono an upfront payment of
$15.0 million. As of December 31, 2008, relative to the $15.0 million upfront
payment from Ono, we have recorded $15.0 million as deferred revenue – current,
which we expect to recognize as revenue during the first quarter of 2009, upon
satisfaction of our performance obligations.
Ono is
responsible for developing and commercializing subcutaneous RELISTOR in Japan,
including conducting the clinical development necessary to support regulatory
marketing approval. Ono is to own the subcutaneous filings and approvals
relating to RELISTOR in Japan. We have received a $15.0 million upfront payment
from Ono, and are entitled to receive up to an additional $20.0 million, payable
upon achievement of development milestones. Ono is also obligated to pay to us
royalties and commercialization milestones on sales by Ono of subcutaneous
RELISTOR in Japan. Ono has the option to acquire from us the rights to develop
and commercialize in Japan other formulations of RELISTOR, including intravenous
and oral forms, on terms to be negotiated separately. Supervision of and
consultation with respect to Ono’s development and commercialization
responsibilities will be carried out by joint committees consisting of members
from both Ono and us. Ono may request us to perform activities related to its
development and commercialization responsibilities beyond our participation in
these committees and specified technology transfer-related tasks which will be
at its expense, and payable to us for the services it requests, at the time we
perform services for them.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
10.
Acquisition of Contractual Rights from Licensors
In 2005,
we acquired substantially all of the assets of UR Labs, Inc. (“URL”), comprised
in part of an exclusive sublicense agreement to develop and commercialize
methylnaltrexone, the active ingredient of RELISTOR, under rights URL licensed
from the University of Chicago. We accounted for the acquisition of the rights
and responsibilities as an asset purchase. The acquired rights relate to the
methylnaltrexone and our research and development activities for
methylnaltrexone, for which technological feasibility had not yet been
established, for which there was no identified alternative future use, and which
had not received regulatory approval for marketing. We continue to have an
obligation for payments (including royalties) to the University of
Chicago.
11.
Commitments and Contingencies
a.
Operating Leases
As of
December 31, 2008, we lease office and laboratory space, as
follows:
Leased
Space
|
|
Area
(Square
Feet)
|
|
Termination
Date
|
|
Other
Terms
|
|
|
|
|
|
|
|
Sublease
1
|
|
91.7
|
|
December
30, 2009
|
|
|
Lease
1
|
|
32.6
|
|
December
31, 2009
|
|
Renewable
for two five-year terms
|
Sublease
2
|
|
5.9
|
|
June
29, 2012
|
|
Four
months rent-free beginning April 1, 2006; converts to Lease
2
|
Lease
2
|
|
|
|
December
31, 2014
|
|
|
Lease
3
|
|
9.2
|
|
June
29, 2012
|
|
Three
months rent-free beginning August 13, 2007; renewable for two five-year
terms; lease incentive of $276 provided by the landlord
|
Lease
4
|
|
6.5
|
|
August
31, 2012
|
|
Renewable
for two terms co-terminous with
Lease
1
|
Total
|
|
145.9
|
|
|
|
|
Such
amounts are recognized as rent expense on a straight-line basis over the term of
the respective leases, including rent-free periods. In addition to rents due
under these agreements, we are obligated to pay additional facilities charges,
including utilities, taxes and operating expenses. We also lease certain office
equipment under non-cancelable operating leases, which expire at various times
through August 2010. At the inception of Lease 3, in August 2007, the landlord
agreed to pay $276 of leasehold improvements related to the renovation of that
office space. That lease incentive is being amortized as a reduction of rent
expense on a straight-line basis over the initial term of the
lease.
As of
December 31, 2008, future minimum annual payments under all operating lease
agreements are as follows:
Years
ending December 31,
|
|
Minimum
Annual
Payments
|
2009
|
|
$ 3,238
|
2010
|
|
504
|
2011
|
|
517
|
2012
|
|
391
|
2013
|
|
194
|
Thereafter
|
|
194
|
Total
|
|
$ 5,038
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
Rental
expense totaled approximately $1,694, $2,415 and $2,971 for the years ended
December 31, 2006, 2007 and 2008, respectively. For the years ended December 31,
2006 and 2007, we recognized rent expense in excess of amounts paid of $74 and
$17, respectively, due to the recognition of escalation clauses and lease
incentives. For the year ended December 31, 2008, amounts paid exceeded rent
expense by $93, due to the recognition of escalation clauses and lease
incentives. Additional facility charges, including utilities, taxes and
operating expenses, for the years ended December 31, 2006, 2007 and 2008 were
approximately $2,932, $2,974 and $3,533, respectively.
b.
Licensing, Service and Supply Agreements of Progenics Pharmaceuticals,
Inc.
Progenics
has entered into a variety of intellectual property-based license and service
agreements in connection with its product development programs. During 2005, we
also entered into a supply agreement for methylnaltrexone. During 2006, we
transferred that agreement and the obligation for the manufacture of
methylnaltrexone, in bulk and finished form, to Wyeth. In connection with all
the agreements discussed below, Progenics has recognized milestone, license and
sublicense fees and supply costs, which are included in research and development
expenses, totaling approximately $1,825, $350 and $1,529 for the years ended
December 31, 2006, 2007 and 2008, respectively. In addition, as of December 31,
2008, remaining payments, including amounts accrued, associated with milestones
and defined objectives as well as annual maintenance fees with respect to the
agreements referred to below total approximately $4,325.
For a
number of years, we have been party to a license agreement with Columbia
University (“Columbia”) under which we obtained rights to technology and
materials for a program we have since terminated. As of December 31, 2008, we
had paid Columbia a total of $890,000 under this license agreement, including
$25,000 in royalties. In January 2009, we and Columbia agreed to terminate and
amend certain rights granted in this license in exchange for a one-time payment
of $300,000, which was accrued as of December 31, 2008. Under this new
arrangement, we retain rights to certain technology for sales of reagents and
other purposes, subject to royalties.
ii. Sloan-Kettering Institute for Cancer Research
We were a
party to a license agreement with Sloan-Kettering under which we obtained the
worldwide, exclusive rights to specified technology relating to ganglioside
conjugate vaccines, including GMK, and its use to treat or prevent cancer. The
license was terminated on February 15, 2008.
iii. Aquila Biopharmaceuticals, Inc.
For a
number of years, we were party to a license and supply agreement with Aquila
Biopharmaceuticals, Inc., a wholly owned subsidiary of Antigenics Inc., for a
program we have since terminated. In November 2008, the agreement was terminated
and a portion of the contingent shares issued to Aquila in connection with the
agreement have since been cancelled.
iv. Facet Biotech Corporation (formerly, Protein Design Labs, Inc.)
Protein
Design Labs (now Facet Biotech Corporation (“Facet”)) humanized a murine
monoclonal antibody developed by us (humanized PRO 140) and granted us related
licenses under patents and patent applications, in addition to know-how. In
general, these licenses are fully paid after the latest of the tenth anniversary
of the first commercial sale of a product developed thereunder, expiration of
the last-to-expire patent or the tenth anniversary of the latest filed pending
patent application. Pending U.S. and international patent applications and
patent-term extensions may extend the period of our license rights when and if
they are allowed, issued or granted. We may terminate the license on 60 days
prior written notice, and either party may terminate on 30 days prior written
notice for an uncured material breach (ten days for payment default). As of
December 31, 2008, we have paid Facet’s predecessors $5.2 million, and if all
milestones are achieved, we will be obligated to pay an additional approximately
$2.0 million. We are also required to pay annual maintenance fees of $150,000
and royalties on sales of products developed under the license.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
v. UR Labs, Inc./ University of Chicago
We have
an exclusive sublicense agreement with URL to develop and commercialize
methylnaltrexone under rights URL licensed from the University of Chicago. After
entering this sublicense, we subsequently acquired substantially all of the
assets of URL, comprised of its rights and responsibilities under its University
of Chicago license, its sublicense with us and related agreements, and at the
same time modified some of those obligations to third parties. As a result, our
only remaining obligations represent payments to the University of Chicago under
the license.
We have
also entered into two agreements with the University of Chicago which give us
the option to license certain of its intellectual property over defined option
periods. As of December 31, 2008, we have paid the University of Chicago
$540,000 and may make payments aggregating $660,000 over the option
periods.
c.
Licensing and Collaboration Agreements of PSMA Development Company
LLC
In
connection with all the agreements discussed below, PSMA LLC, which became our
wholly owned subsidiary on April 20, 2006 (see Note 12) has recognized
milestone, license and annual maintenance fees, which are included in research
and development expenses of PSMA LLC, totaling approximately $200, $600 and $865
for the years ended December 31, 2006, 2007 and 2008, respectively. In addition,
in connection with our acquisition of a former member’s interest in PSMA LLC
(see Note 12), the former member granted an exclusive license to PSMA LLC, under
which PSMA LLC recognized $25, $38 and $28 in license fees for the years ended
December 31, 2006, 2007 and 2008, respectively. As of December 31, 2008,
remaining payments, including amounts accrued, associated with milestones and
defined objectives with respect to the agreements referred to below, as well as
with respect to the license granted by the former member to PSMA LLC, total
approximately $78.1 million.
i.
Amgen Fremont, Inc. (formerly Abgenix)
PSMA LLC
has a worldwide exclusive licensing agreement with Abgenix (now Amgen Fremont,
Inc.) to use its XenoMouse®
technology for generating fully human antibodies to PSMA LLC’s PSMA antigen.
PSMA LLC is obligated to make payments under this license upon the occurrence of
defined milestones associated with the development and commercialization program
for products incorporating an antibody generated utilizing the XenoMouse
technology. As of December 31, 2008, PSMA LLC has paid to Abgenix $850,000 under
this agreement. If PSMA LLC achieves certain milestones specified under the
agreement, it will be obligated to pay Abgenix up to an additional $6.25
million. In addition, PSMA LLC is required to pay royalties based upon net sales
of antibody products, if any. This agreement may be terminated, after an
opportunity to cure, by Abgenix for cause upon 30 days prior written notice.
PSMA LLC has the right to terminate this agreement upon 30 days prior written
notice. If not terminated early, this agreement continues until the later of the
expiration of the XenoMouse technology patents that may result from pending
patent applications or seven years from the first commercial sale of the
products.
ii.
AlphaVax Human Vaccines
PSMA LLC has a worldwide exclusive license agreement with AlphaVax
Human Vaccines (“Alpha Vax”) to use its AlphaVax Replicon Vector system to
create a therapeutic prostate cancer vaccine incorporating PSMA LLC’s
proprietary PSMA antigen. PSMA LLC is obligated to make payments under the
license upon the occurrence of certain milestones associated with the
development and commercialization program for products incorporating AlphaVax’s
system. As of December 31, 2008, PSMA LLC has paid to AlphaVax $1.7 million
under this agreement. If PSMA LLC achieves certain milestones specified under
the agreement, it will be obligated to pay AlphaVax up to an additional $5.3
million. In addition, PSMA LLC is required to pay annual maintenance fees of
$100,000 until the first commercial sale and royalties based upon net sales of
any products developed using AlphaVax’ system. This agreement may be terminated,
after an opportunity to cure, by AlphaVax under specified circumstances,
including PSMA LLC’s failure to achieve milestones; the consent of AlphaVax to
revisions to the milestones due dates may not, however, be unreasonably
withheld. PSMA LLC has the right to terminate the agreement upon 30 days prior
written notice. If not terminated early, this agreement continues until the
later of the expiration of the patents relating to AlphaVax’s system or seven
years from the first commercial sale of the products developed using that
system. Pending U.S. and international patent applications and patent-term
extensions may extend the period of our license rights when and if they are
allowed, issued or granted.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
iii.
Seattle Genetics, Inc.
PSMA LLC
has a collaboration agreement with Seattle Genetics, Inc. (“SGI”), under which
SGI has granted PSMA LLC an exclusive worldwide license to its proprietary ADC
technology. Under the license, PSMA LLC has the right to use this technology to
link chemotherapeutic agents to PSMA LLC’s monoclonal antibodies that target
prostate specific membrane antigen. The ADC technology is based, in part, on
technology licensed by SGI from third parties. PSMA LLC is responsible for
research, product development, manufacturing and commercialization of all
products under the SGI agreement. PSMA LLC may sublicense the ADC technology to
a third party to manufacture ADCs for both research and commercial use. Under
the agreement, PSMA LLC is obligated to make maintenance payments, additional
payments aggregating up to $14.0 million upon the achievement of certain
milestones and to pay royalties to SGI and its licensors, as applicable, on a
percentage of net sales. The SGI agreement terminates at the latest of (i) the
tenth anniversary of the first commercial sale of each licensed product in each
country or (ii) the latest date of expiration of patents underlying the licensed
products. PSMA LLC may terminate the SGI agreement upon advance written notice
to SGI. SGI may terminate the agreement if PSMA LLC fails to cure a breach of an
SGI in-license within a specified time period after written notice. In addition,
either party may terminate the SGI agreement after written notice upon an
uncured breach or in the event of bankruptcy of the other party. As of December
31, 2008, PSMA LLC has paid to SGI approximately $3.6 million under this
agreement, including $1.0 million in milestone payments.
d.
Consulting Agreements
As part
of our research and development efforts, we enter into consulting agreements
with external scientific specialists (“Scientists”). These agreements contain
various terms and provisions, including fees to be paid by us and royalties, in
the event of future sales, and milestone payments, upon achievement of defined
events, payable by us. Certain Scientists are members of the Progenics’
Scientific Advisory Board (the “SAB Members”), including Stephen P. Goff, Ph.D.
and David A. Scheinberg, M.D., Ph.D., both of whom are also members of our Board
of Directors. Some Scientists have purchased our Common Stock or received stock
options which are subject to vesting provisions. We have recognized expenses
with regard to the consulting agreements of the SAB Members totaling
approximately $893, $1,092 and $358 for the years ended December 31, 2006, 2007
and 2008, respectively. Those expenses include the fair value of stock options
granted during 2006, 2007 and 2008, which were fully vested at grant date, of
approximately $620, $691 and $217, respectively. For the year ended December 31,
2007, those expenses include a portion of restricted stock, granted in 2007,
that vested in 2007, of approximately $127. Such amounts of fair value are
included in research and development compensation expense for each year
presented (see Note 3).
12.
PSMA Development Company LLC
PSMA LLC
was formed on June 15, 1999 as a joint venture between us and a former member
(each a “Member” and collectively, the “Members”) for the purposes of conducting
research, development, manufacturing and marketing of products related to
PSMA. On April 20, 2006, we acquired
the former member’s 50% membership interest in PSMA LLC, including its economic
interests in capital, profits, losses and distributions of PSMA LLC and its
voting rights, in exchange for a cash payment of $13.2 million (the
“Acquisition”). We also paid $259 in transaction costs related to the
Acquisition. In connection with the Acquisition, the Licensing Agreement entered
into by the Members upon the formation of PSMA LLC, under which the former
member had granted a license to PSMA LLC for certain PSMA-related intellectual
property, was amended.
Since the
acquired intellectual property and license rights relate to research and
development projects that, at the acquisition date, had not reached
technological feasibility, did not have an identified alternative future use and
had not received regulatory approval from the FDA for marketing, at the
acquisition date we charged $13,209 to research and development expense after
consideration of the transaction costs and net tangible assets
acquired.
13.
Employee Savings Plan
The terms
of the amended and restated Progenics Pharmaceuticals 401(k) Plan (the “Amended
Plan”), among other things, allow eligible employees to participate in the
Amended Plan by electing to contribute to the Amended Plan a percentage of their
compensation to be set aside to pay their future retirement benefits. During
2006, 2007 and 2008, we matched 100% of those employee contributions that are
equal to 5%-8% of compensation and are made by eligible employees to the Amended
Plan (the “Matching Contribution”). In addition, we may also make a
discretionary contribution each year on behalf of all participants who are
non-highly compensated employees. We made Matching Contributions of
approximately $1,135, $1,538 and $1,727 to the Amended Plan for the years ended
December 31, 2006, 2007 and 2008, respectively. No discretionary contributions
were made during those years.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
14.
Income Taxes
We
account for income taxes using the liability method in accordance with FAS 109.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
There is
no provision or benefit for federal or state income taxes for the years ended
December 31, 2006, 2007 or 2008. We have completed a calculation, under Internal
Revenue Code Section 382, the results of which indicate that past ownership
changes will limit utilization of net operating loss carry-forwards (“NOL’s”) in
the future. Future ownership changes may further limit the future utilization of
net operating loss and tax credit carry-forwards as defined by the federal and
state tax codes.
Deferred
tax assets consist of the following:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
Depreciation
and amortization
|
|
$ |
5,912 |
|
|
$ |
6,231 |
|
R&E
tax credit carry-forwards
|
|
|
8,203 |
|
|
|
9,139 |
|
AMT
credit carry-forwards
|
|
|
306 |
|
|
|
306 |
|
Net
operating loss carry-forwards
|
|
|
73,792 |
|
|
|
87,672 |
|
Deferred
revenue
|
|
|
10,632 |
|
|
|
12,396 |
|
Stock
compensation
|
|
|
8,155 |
|
|
|
10,923 |
|
Other
items
|
|
|
2,713 |
|
|
|
2,402 |
|
|
|
|
109,713 |
|
|
|
129,069 |
|
Valuation
allowance
|
|
|
(109,713 |
) |
|
|
(129,069 |
) |
|
|
$ |
— |
|
|
$ |
— |
|
We do not
recognize deferred tax assets considering our history of taxable losses and the
uncertainty regarding our ability to generate sufficient taxable income in the
future to utilize these deferred tax assets. The increase in the valuation
allowance resulted primarily from the additional net operating loss
carry-forwards.
The
following is a reconciliation of income taxes computed at the Federal statutory
income tax rate to the actual effective income tax provision:
|
|
Year
Ended December 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
U.S.
Federal statutory rate
|
|
(34.0)%
|
|
(34.0)%
|
|
(34.0)%
|
State
income taxes, net of Federal benefit
|
|
(5.8)
|
|
(5.6)
|
|
(5.4)
|
Research
and experimental tax credit
|
|
(6.4)
|
|
(4.2)
|
|
(4.3)
|
Change
in valuation allowance
|
|
43.1
|
|
40.8
|
|
43.3
|
Other
|
|
3.1
|
|
3.0
|
|
0.4
|
Income
tax provision
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
As of
December 31, 2008, we had available, for tax return purposes, unused NOL’s of
approximately $239.5 million, which will expire in various years from 2018 to
2028, $17.4 million of which were generated from deductions that, when realized,
will reduce taxes payable and will increase paid-in-capital.
We have
reviewed our nexus in various tax jurisdictions and our tax positions related to
all open tax years for events that could change the status of its FIN 48
liability, if any, or require an additional liability to be recorded. Such
events may be the resolution of issues raised by a taxing authority, expiration
of the statute of limitations for a prior open tax year or new transactions for
which a tax position may be deemed to be uncertain. Upon adoption of FIN 48 on
January 1, 2007 and during the years ended December 31, 2007 and 2008, we had no
unrecognized tax benefits resulting from tax positions during a prior or current
period, settlements with taxing authorities or the expiration of the applicable
statute of limitations. As of the date of adoption and at December 31, 2008,
there were no amounts of unrecognized tax benefits that, if recognized, would
affect the effective tax rate and there were no tax positions for which it is
reasonably possible that the total amounts of unrecognized tax benefits will
significantly increase or decrease within twelve months from the respective
date. As of December 31, 2008, we are subject to federal and state income tax in
the United States. Open tax years relate to years in which unused net operating
losses were generated or, if used, for which the statute of limitation for
examination by taxing authorities has not expired. Thus, upon adoption of FIN 48
and at December 31, 2008, our open tax years extend back to 1995, with the
exception of 1997, during which we reported net income. No amounts of interest
or penalties were recognized in our Consolidated Statements of Operations or
Consolidated Balance Sheets upon adoption of FIN 48 or as of and for the years
ended December 31, 2007 and 2008.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise noted)
In
connection with our adoption of FAS 123(R) on January 1, 2006 (see Note 3), we
elected to implement the short cut method of calculating our pool of windfall
tax benefits. Accordingly, our pool of windfall tax benefits on January 1, 2006
was zero because it had NOL’s since inception and, therefore, had never
recognized any net increases in additional paid-in capital in our annual
financial statements related to tax benefits from stock-based employee
compensation during fiscal periods subsequent to the adoption of FAS 123 but
prior to the adoption of FAS 123(R).
Our
research and experimental (“R&E”) tax credit carry-forwards of approximately
$9.1 million at December 31, 2008 expire in various years from 2009 to 2028.
During the year ended December 31, 2008, research and experimental tax credit
carry-forwards of approximately $91 expired.
15.
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
years ended December 31, 2006, 2007 and 2008, we reported a net loss and,
therefore, 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:
|
|
Net
Loss
(Numerator)
|
|
|
Weighted
Average
Common
Shares
(Denominator)
|
|
|
Per
Share
Amount
|
|
2006:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(21,618 |
) |
|
|
25,669 |
|
|
$ |
(0.84 |
) |
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(43,688 |
) |
|
|
27,378 |
|
|
$ |
(1.60 |
) |
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(44,672 |
) |
|
|
29,654 |
|
|
$ |
(1.51 |
) |
For the
years ended December 31, 2006, 2007 and 2008, potential common shares which have
been excluded from diluted per share amounts because their effect would have
been anti-dilutive include the following:
|
|
Years Ended
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
Weighted
Average
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
Options
and warrants
|
|
|
4,663 |
|
|
$ |
15.13 |
|
|
|
4,703 |
|
|
$ |
17.56 |
|
|
|
4,854 |
|
|
$ |
18.01 |
|
Restricted
stock
|
|
|
312 |
|
|
|
|
|
|
|
454 |
|
|
|
|
|
|
|
522 |
|
|
|
|
|
Total
|
|
|
4,975 |
|
|
|
|
|
|
|
5,157 |
|
|
|
|
|
|
|
5,376 |
|
|
|
|
|
16.
Unaudited Quarterly Results
Summarized
quarterly financial data for the years ended December 31, 2007 and 2008 are as
follows:
|
|
Quarter
Ended
March
31,
2007
(unaudited)
|
|
|
Quarter
Ended
June
30,
2007
(unaudited)
|
|
|
Quarter Ended
September 30,
2008
(unaudited)
|
|
|
Quarter
Ended
December
31,
2007
(unaudited)
|
|
Revenue
|
|
$ |
17,637 |
|
|
$ |
25,457 |
|
|
$ |
17,018 |
|
|
$ |
15,534 |
|
Net
loss
|
|
|
(10,433 |
) |
|
|
(2,383 |
) |
|
|
(15,600 |
) |
|
|
(15,272 |
) |
Net
loss per share (basic and diluted)
|
|
|
(0.40 |
) |
|
|
(0.09 |
) |
|
|
(0.58 |
) |
|
|
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
March
31,
2008
(unaudited)
|
|
|
Quarter
Ended
June
30,
2008
(unaudited)
|
|
|
Quarter Ended
September 30,
2008
(unaudited)
|
|
|
Quarter
Ended
December
31,
2008
(unaudited)
|
|
Revenue
|
|
$ |
14,762 |
|
|
$ |
28,584 |
|
|
$ |
17,497 |
|
|
$ |
6,828 |
|
Net
loss
|
|
|
(15,485 |
) |
|
|
(2,369 |
) |
|
|
(12,220 |
) |
|
|
(14,598 |
) |
Net
loss per share (basic and diluted)
|
|
|
(0.52 |
) |
|
|
(0.08 |
) |
|
|
(0.41 |
) |
|
|
(0.49 |
) |
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
|
PROGENICS
PHARMACEUTICALS, INC.
|
|
By:
|
/s/
PAUL J. MADDON, M.D., PH.D.
|
|
|
Paul
J. Maddon, M.D., Ph.D.
(Duly
authorized officer of the Registrant
and Chief Executive Officer, Chief Science Officer and
Director)
|
Date:
March 13, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature
|
|
Capacity
|
Date
|
/s/
KURT W. BRINER
|
|
Co-Chairman
|
March
13, 2009
|
Kurt
W. Briner
|
|
|
|
/s/
PAUL J. MADDON, M.D., PH.D.
|
|
Chief
Executive Officer, Chief Science
|
March
13, 2009
|
Paul
J. Maddon, M.D., Ph.D.
|
|
Officer
and Director (Principal Executive Officer)
|
|
/s/
CHARLES A. BAKER
|
|
Director
|
March
13, 2009
|
Charles
A. Baker
|
|
|
|
/s/
PETER J. CROWLEY
|
|
Director
|
March
13, 2009
|
Peter
J. Crowley
|
|
|
|
/s/
MARK F. DALTON
|
|
Director
|
March
13, 2009
|
Mark
F. Dalton
|
|
|
|
/s/
STEPHEN P. GOFF, PH.D.
|
|
Director
|
March
13, 2009
|
Stephen
P. Goff, Ph.D.
|
|
|
|
/s/
DAVID A. SCHEINBERG, M.D., PH.D.
|
|
Director
|
March
13, 2009
|
David
A. Scheinberg, M.D., Ph.D.
|
|
|
|
/s/
NICOLE S. WILLIAMS
|
|
Director
|
March
13, 2009
|
Nicole
S. Williams
|
|
|
|
/s/
ROBERT A. MCKINNEY, CPA
|
|
Chief
Financial Officer, Senior Vice President,
|
March
13, 2009
|
Robert
A. McKinney, CPA
|
|
Finance
& Operations and Treasurer
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
Exhibit
|
|
|
Number
*
|
|
Description
|
3.1(14)
|
|
Restated
Certificate of Incorporation of the Registrant.
|
3.2(14)
|
|
Amended
and Restated By-laws of the Registrant.
|
4.1(1)
|
|
Specimen
Certificate for Common Stock, $0.0013 par value per share, of the
Registrant.
|
10.1(1)
|
|
Form
of Registration Rights Agreement.
|
10.2(1)
|
|
1989
Non-Qualified Stock Option Plan‡
|
10.3(1)
|
|
1993
Stock Option Plan, as amended‡
|
10.4(1)
|
|
1993
Executive Stock Option Plan‡
|
10.5(3)
|
|
Amended
and Restated 1996 Stock Incentive Plan‡
|
10.6(14)
|
|
2005
Stock Incentive Plan‡
|
10.6.1(10)
|
|
Form
of Non-Qualified Stock Option Award Agreement‡
|
10.6.2(10)
|
|
Form
of Restricted Stock Award Agreement‡
|
10.6.3(16)
|
|
Amended
2005 Stock Incentive Plan ‡
|
10.6.4(18)
|
|
Form
of Non-Qualified Stock Option Award Agreement ‡
|
10.6.5(18)
|
|
Form of Restricted Stock Award
Agreement ‡
|
10.7(15)
|
|
Form
of Indemnification Agreement‡
|
10.8(19)
|
|
Employment
Agreement, dated December 31, 2007, between the Registrant and
Dr. Paul J. Maddon‡
|
10.9(1)
|
|
Letter
dated August 25, 1994 between the Registrant and Dr. Robert J.
Israel‡
|
10.10(8)
|
|
Amended
1998 Employee Stock Purchase Plan‡
|
10.11(8)
|
|
Amended
1998 Non-qualified Employee Stock Purchase Plan‡
|
10.15(5)
|
|
Amended
and Restated Sublease, dated June 6, 2000, between the Registrant and
Crompton Corporation.
|
10.16(2)†
|
|
Development
and License Agreements, dated April 30, 1999, between Protein Design
Labs, Inc. and the Registrant.
|
10.16.1(11)
|
|
Letter
Agreement, dated November 24, 2003, relating to the Development and
License Agreement between Protein Design Labs, Inc. and the
Registrant.
|
10.18(4)
|
|
Director
Stock Option Plan‡
|
10.19(6)†
|
|
Exclusive
Sublicense Agreement, dated September 21, 2001, between the
Registrant and UR Labs, Inc.
|
10.19.1(9)
|
|
Amendment
to Exclusive Sublicense Agreement, dated September 21, 2001, between
the Registrant and UR Labs, Inc.
|
10.20(7)
|
|
Research
and Development Contract, dated September 26, 2003, between the
National Institutes of Health and the Registrant.
|
10.21(7)
|
|
Agreement
of Lease, dated September 30, 2003, between Eastview Holdings LLC and
the Registrant.
|
10.22(7)
|
|
Letter
Agreement, dated October 23, 2003, amending Agreement of Lease
between Eastview Holdings LLC and the Registrant.
|
10.23(11)
|
|
Summary
of Non-Employee Director Compensation‡
|
10.24(12)
†
|
|
License
and Co-Development Agreement, dated December 23, 2005, by and among
Wyeth, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall
Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc. and the Registrant
and Progenics Pharmaceuticals Nevada, Inc.
|
10.25(12)
†
|
|
Option
and License Agreement, dated May 8, 1985, by and between the
University of Chicago and UR Labs, Inc., as amended by the Amendment to
Option and License Agreement, dated September 17, 2005, by and
between the University of Chicago and UR Labs, Inc., by the Second
Amendment to Option and License Agreement, dated March 3, 1989, by
and among the University of Chicago, ARCH Development Corporation and UR
Labs, Inc. and by the Letter Agreement Related to Progenics’ RELISTOR
In-License dated, December 22, 2005, by and among the University of
Chicago, acting on behalf of itself and ARCH Development Corporation, the
Registrant, Progenics Pharmaceuticals Nevada, Inc. and Wyeth, acting
through its Wyeth Pharmaceuticals Division.
|
10.26(13)
|
|
Membership
Interest Purchase Agreement, dated April 20, 2006, between the
Registrant Inc. and Cytogen Corporation.
|
10.27(13)
†
|
|
Amended
and Restated PSMA/PSMP License Agreement, dated April 20, 2006, by
and among the Registrant, Cytogen Corporation and PSMA Development Company
LLC.
|
10.28(17)
|
|
Consulting
Agreement, dated May 1, 1995, between Active Biotherapies, Inc. and
Dr. David A. Scheinberg, M.D., Ph.D., as amended on June 13,
1995, as assigned to the Registrant, and as amended on January 1,
2001‡
|
10.29
††
|
|
License
Agreement, dated as of October 16, 2008, by and among Ono Pharmaceutical
Co., Ltd. and the Registrant.
|
10.30
††
|
|
Partial
Termination and License Agreement, dated October 16, 2008, by and
among Wyeth, acting through Wyeth Pharmaceuticals Division,
Wyeth-Whitehall Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc. and
the Registrant and Progenics Pharmaceuticals Nevada,
Inc.
|
10.31
††
|
|
Consent,
Acknowledgment and Agreement, dated as of October 16, 2008, by and among
Wyeth, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall
Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc., the Registrant and
Ono Pharmaceutical Co., Ltd.
|
10.32
††
|
|
2008
Agreement Related to Progenics’ MNTX In-License, dated October 16,
2008, by and among the University of Chicago, acting on behalf of itself
and ARCH Development Corporation, the Registrant, Progenics
Pharmaceuticals Nevada, Inc. and Ono Pharmaceutical Co.,
Ltd.
|
21.1(19)
|
|
Subsidiaries
of the Registrant.
|
23.1
|
|
Consent
of PricewaterhouseCoopers LLP.
|
31.1
|
|
Certification
of Paul J. Maddon, M.D., Ph.D., Chief Executive Officer of the Registrant
pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities
Exchange Act of 1934, as amended.
|
31.2
|
|
Certification
of Robert A. McKinney, Chief Financial Officer, Senior Vice President,
Finance and Operations and Treasurer of the Registrant pursuant to
13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as
amended.
|
32.1
|
|
Certification
of Paul J. Maddon, M.D., Ph.D., Chief Executive Officer of the Registrant
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification
of Robert A. McKinney, Chief Financial Officer, Senior Vice President,
Finance and Operations and Treasurer of the Registrant pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
*
|
|
Exhibits
footnoted as previously filed have been filed as an exhibit to the
document of the Registrant referenced in the footnote below, and are
incorporated by reference herein.
|
|
|
|
(1)
|
|
Previously
filed in Registration Statement on Form S-1, Commission File
No. 333-13627.
|
|
(2)
|
|
Previously
filed in Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999.
|
|
(3)
|
|
Previously
filed in Registration Statement on Form S-8, Commission File
No. 333-120508.
|
|
(4)
|
|
Previously
filed in Annual Report on Form 10-K for the year ended
December 31, 1999.
|
|
(5)
|
|
Previously
filed in Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000.
|
|
(6)
|
|
Previously
filed in Annual Report on Form 10-K for the year ended
December 31, 2002.
|
|
(7)
|
|
Previously
filed in Quarterly Report on Form 10-Q for the quarterly period
ending September 30, 2003.
|
|
(8)
|
|
Previously
filed in Registration Statement on Form S-8, Commission File
No. 333-143671.
|
|
(9)
|
|
Previously
filed in Current Report on Form 8-K filed on September 20,
2004.
|
|
(10)
|
|
Previously
filed in Current Report on Form 8-K filed on July 8,
2008.
|
|
(11)
|
|
Previously
filed in Annual Report on Form 10-K for the year ended
December 31, 2004.
|
|
(12)
|
|
Previously
filed in Annual Report on Form 10-K for the year ended
December 31, 2005.
|
|
(13)
|
|
Previously
filed in Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 2006.
|
|
(14)
|
|
Previously
filed in Current Report on Form 8-K filed on May 13,
2005.
|
|
(15)
|
|
Previously
filed in Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 2007.
|
|
(16)
|
|
Previously
filed in Registration Statement on Form S-8, Commission File
No. 333-143670.
|
|
(17)
|
|
Previously
filed in Annual Report on Form 10-K/A for the year ended
December 31, 2006.
|
|
(18)
|
|
Previously
filed in Current Report on Form 8-K filed on July 8,
2008.
|
|
|
|
(19) |
|
Previously
filed in Annual Report on Form 10-K for the year ended December 31,
2007. |
|
|
†
|
|
Confidential
treatment granted as to certain portions omitted and filed separately with
the Commission.
|
††
|
|
Confidential
treatment requested as to certain portions omitted and filed separately
with the Commission.
|
‡
|
|
Management
contract or compensatory plan or
arrangement.
|
E-2