form10q3312008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended March 31, 2008
OR
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________________ to ________________
Commission
file number 000-23143
PROGENICS
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
13-3379479
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
777
Old Saw Mill River Road
Tarrytown,
New York 10591
(Address
of principal executive offices)
(Zip
Code)
(914)
789-2800
(Registrant’s
telephone number, including area code)
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 o
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer ¨ Accelerated
filer x
Non-accelerated filer ¨ Smaller
reporting company ¨
(Do
not check if a smaller reporting company)
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
As of May
7, 2008 there were 30,021,933 shares of common stock, par value $.0013 per
share, of the registrant outstanding.
PROGENICS PHARMACEUTICALS,
INC.
|
|
Page
No.
|
Part
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
|
3
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
Item
2.
|
|
18
|
Item
3.
|
|
34
|
Item
4.
|
|
34
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
Item
1A.
|
|
35
|
Item
6.
|
|
40
|
|
|
41
|
Item
1. Financial Statements (Unaudited)
PROGENICS PHARMACEUTICALS,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(amounts
in thousands, except for par value and share amounts)
(Unaudited)
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
25,985 |
|
|
$ |
10,423 |
|
Marketable
securities
|
|
|
79,657 |
|
|
|
120,000 |
|
Accounts
receivable
|
|
|
1,607 |
|
|
|
1,995 |
|
Other
current assets
|
|
|
3,378 |
|
|
|
3,111 |
|
Total
current assets
|
|
|
110,627 |
|
|
|
135,529 |
|
Marketable
securities
|
|
|
49,326 |
|
|
|
39,947 |
|
Fixed
assets, at cost, net of accumulated depreciation and
amortization
|
|
|
13,194 |
|
|
|
13,511 |
|
Restricted
cash
|
|
|
553 |
|
|
|
552 |
|
Total
assets
|
|
$ |
173,700 |
|
|
$ |
189,539 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
12,696 |
|
|
$ |
14,765 |
|
Deferred
revenue ¾
current
|
|
|
16,135 |
|
|
|
17,728 |
|
Other
current liabilities
|
|
|
57 |
|
|
|
57 |
|
Total
current liabilities
|
|
|
28,888 |
|
|
|
32,550 |
|
Deferred
revenue —long term
|
|
|
6,626 |
|
|
|
9,131 |
|
Other
liabilities
|
|
|
336 |
|
|
|
359 |
|
Total
liabilities
|
|
|
35,850 |
|
|
|
42,040 |
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
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 and
outstanding— 29,908,993 in 2008 and 29,753,820 in 2007
|
|
|
39 |
|
|
|
39 |
|
Additional
paid-in capital
|
|
|
406,950 |
|
|
|
401,500 |
|
Accumulated
deficit
|
|
|
(269,531
|
) |
|
|
(254,046
|
) |
Accumulated
other comprehensive income
|
|
|
392 |
|
|
|
6 |
|
Total
stockholders’ equity
|
|
|
137,850 |
|
|
|
147,499 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
173,700 |
|
|
$ |
189,539 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
(amounts
in thousands, except net loss per share)
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Research
and development from collaborator
|
|
$ |
12,110 |
|
|
$ |
15,499 |
|
Research
grants and contracts
|
|
|
2,613 |
|
|
|
2,119 |
|
Product
sales
|
|
|
39 |
|
|
|
19 |
|
Total
revenues
|
|
|
14,762 |
|
|
|
17,637 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
22,790 |
|
|
|
22,421 |
|
License
fees ¾ research
and development
|
|
|
1,149 |
|
|
|
750 |
|
General
and administrative
|
|
|
7,152 |
|
|
|
6,276 |
|
Depreciation
and amortization
|
|
|
1,114 |
|
|
|
492 |
|
Total
expenses
|
|
|
32,205 |
|
|
|
29,939 |
|
Operating
loss
|
|
|
(17,443
|
) |
|
|
(12,302
|
) |
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,958 |
|
|
|
1,869 |
|
Total
other income
|
|
|
1,958 |
|
|
|
1,869 |
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(15,485 |
) |
|
$ |
(10,433 |
) |
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$ |
(0.52 |
) |
|
$ |
(0.40 |
) |
Weighted-average
shares - basic and diluted
|
|
|
29,834 |
|
|
|
26,365 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
.
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE LOSS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008
(amounts
in thousands)
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Comprehensive
Income
|
|
|
Total
|
|
|
Comprehensive
(Loss)
|
|
Balance
at December 31, 2007
|
|
|
29,754 |
|
|
$ |
39 |
|
|
$ |
401,500 |
|
|
$ |
(254,046 |
) |
|
$ |
6 |
|
|
$ |
147,499 |
|
|
|
|
Compensation
expense for vesting of share-based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
3,912 |
|
|
|
|
|
|
|
|
|
|
|
3,912 |
|
|
|
|
Issuance
of restricted stock, net of forfeitures
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock under employee stock purchase plans and exercise of stock
options
|
|
|
157 |
|
|
|
|
|
|
|
1,538 |
|
|
|
|
|
|
|
|
|
|
|
1,538 |
|
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,485 |
) |
|
|
|
|
|
|
(15,485 |
) |
|
$ |
(15,485 |
) |
Net
change in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386 |
|
|
|
386 |
|
|
|
386 |
|
Balance
at March 31, 2008
|
|
|
29,909 |
|
|
$ |
39 |
|
|
$ |
406,950 |
|
|
$ |
(269,531 |
) |
|
$ |
392 |
|
|
$ |
137,850 |
|
|
$ |
(15,099 |
) |
The
accompanying notes are an integral part of these condensed financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts
in thousands)
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(15,485 |
) |
|
$ |
(10,433 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,114 |
|
|
|
492 |
|
Amortization
of discounts, net of premiums, on marketable securities
|
|
|
95 |
|
|
|
(49
|
) |
Noncash
expenses incurred in connection with vesting of share-based compensation
awards
|
|
|
3,912 |
|
|
|
2,948 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
388 |
|
|
|
|
|
(Increase) decrease
in other current assets
|
|
|
(267
|
) |
|
|
346 |
|
(Decrease)
increase in accounts payable and accrued
expenses
|
|
|
(2,069
|
) |
|
|
1,133 |
|
Decrease
in deferred revenue
|
|
|
(4,098
|
) |
|
|
(5,272
|
) |
(Decrease)
increase in deferred lease liability
|
|
|
(23
|
) |
|
|
1 |
|
Net
cash used in operating activities
|
|
|
(16,433
|
) |
|
|
(10,834
|
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(797
|
) |
|
|
(1,067
|
) |
Sales
of marketable securities
|
|
|
63,055 |
|
|
|
69,439 |
|
Purchase
of marketable securities
|
|
|
(31,800
|
) |
|
|
(52,050
|
) |
Increase
in restricted cash
|
|
|
(1
|
) |
|
|
(2
|
) |
Net
cash provided by investing activities
|
|
|
30,457 |
|
|
|
16,320 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options and sale of Common Stock under the
Employee Stock Purchase Plans
|
|
|
1,538 |
|
|
|
2,804 |
|
Net
cash provided by financing activities
|
|
|
1,538 |
|
|
|
2,804 |
|
Net
increase in cash and cash equivalents
|
|
|
15,562 |
|
|
|
8,290 |
|
Cash
and cash equivalents at beginning of period
|
|
|
10,423 |
|
|
|
11,947 |
|
Cash
and cash equivalents at end of period
|
|
$ |
25,985 |
|
|
$ |
20,237 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
Progenics
Pharmaceuticals, Inc. (the “Company” or “Progenics”) 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. The Company’s principal
programs are directed toward gastroenterology, virology and
oncology.
The
Company was incorporated in Delaware on December 1, 1986 and commenced principal
operations in late 1988. Currently, all of the Company’s operations are
conducted at the Company’s facilities in Tarrytown, New York. The Company’s
chief operating decision maker reviews financial analyses and forecasts relating
to all of the Company’s research programs as a single unit and allocates
resources and assesses performance of such programs as a whole. The Company
operates under a single research and development segment.
The
Company’s lead product is RELISTOR™ (methylnaltrexone bromide). On April 24,
2008 RELISTOR subcutaneous injection was approved by the U.S. Food and Drug
Administration (FDA) for sale in the United States for the treatment of
opioid-induced constipation (OIC) in patients with advanced illness who are
receiving palliative care, when response to laxative therapy has not been
sufficient. Progenics’ collaboration partner, Wyeth Pharmaceuticals (“Wyeth”),
plans to launch the sale of RELISTOR subcutaneous injection in the United States
in June 2008.
RELISTOR
subcutaneous injection received marketing approval from Health Canada in March
2008 for the treatment of OIC in patients with advanced illness receiving
palliative care. A launch of RELISTOR subcutaneous injection sales in Canada is
planned by Wyeth for June 2008.
A
Positive Opinion for RELISTOR subcutaneous injection was received on April 24,
2008 from the Committee for Medicinal Products for Human Use (CHMP), the
scientific committee of the European Medicines Agency (EMEA), for the treatment
of opioid-induced constipation in advanced illness patients who are receiving
palliative care when response to usual laxative therapy has not been sufficient.
Final action by the European Commission on the marketing application to the EMEA
is expected by mid-2008.
Marketing
applications for RELISTOR subcutaneous injection are also pending in Australia
and other countries.
Development
and commercialization of RELISTOR is being conducted under a license and
co-development agreement (“Collaboration Agreement”) between the Company and
Wyeth. Under that agreement, the Company (i) has received an upfront payment
from Wyeth, (ii) has received, and is entitled to receive further, additional
payments as certain developmental milestones for RELISTOR are achieved, (iii)
has been and will be reimbursed by Wyeth for expenses the Company incurs in
connection with the development of RELISTOR under an agreed-upon development
plan and (iv) will receive royalties and commercialization milestone payments.
These payments will depend on the successful 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 the control of the Company.
Manufacturing and commercialization expenses for RELISTOR will be funded by
Wyeth.
In May 2007, the Company earned $9.0
million in milestone payments under its Collaboration Agreement with Wyeth for
having made filings seeking marketing approval for RELISTOR subcutaneous
injection in the U.S. and Europe. In April 2008, the Company earned a $15.0
million milestone payment for the FDA approval of subcutaneous
RELISTOR.
The Company and Wyeth are also
developing intravenous and oral formulations of RELISTOR.
The
Company’s other product candidates, including those for treatment of Human
Immunodeficiency virus (“HIV”) infection, therapy for prostate cancer involving
prostate-specific membrane antigen (“PSMA”) and treatment of hepatitis C virus
(“HCV”) infection, are not as advanced in development as RELISTOR, and the
Company does not expect any recurring revenues from sales or otherwise with
respect to these product candidates in the near term. As a result of Wyeth’s
agreement to reimburse Progenics for RELISTOR development expenses, the Company
is able to devote its current and future resources to its other research and
development programs.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
As a
result of its development expenses and other needs, the Company may require
additional funding to continue its operations. The Company may enter into a
collaboration agreement, or a license or sale transaction, with respect to its
product candidates other than RELISTOR. The Company may also seek to raise
additional capital through the sale of its common stock or other securities and
expects to fund certain aspects of its operations through government grants and
contracts.
The
Company has had recurring losses. At March 31, 2008, the Company had an
accumulated deficit of $269.5 million and had cash, cash equivalents and
marketable securities, including non-current portion, totaling $155.0 million.
The Company expects that cash, cash equivalents and marketable securities at
March 31, 2008 will be sufficient to fund current operations beyond one year.
During the three months ended March 31, 2008, the Company had a net loss of
$15.5 million and used cash in operating activities of $16.4
million.
On April
24, 2008, Progenics announced that its Board of Directors had approved a share
repurchase program to acquire up to $15 million of its outstanding common
shares, funding for which will come from the $15 million milestone payment the
Company will receive from Wyeth for receiving U.S. marketing approval for
RELISTOR. Purchases under the program will be made at the Company’s discretion
subject to market conditions in the open-market or otherwise, and will be made
in accordance with the regulations of the U.S. Securities and Exchange
Commission, including Rule 10b-18. The Company has made no commitment to
purchase any shares and purchases may be discontinued at any time. Reacquired
shares will be held in treasury until redeployed or retired.
Pending
use in its business, the Company’s revenues and proceeds of financing activities
are held in cash, cash equivalents and marketable securities. Its marketable
securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available for sale.
The
interim Condensed Consolidated Financial Statements of the Company included in
this report have been prepared in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all
information and disclosures necessary for a presentation of the Company’s
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, these
financial statements reflect all adjustments, consisting primarily of normal
recurring accruals, necessary for a fair statement of results for the periods
presented. The results of operations for interim periods are not necessarily
indicative of the results for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto contained
in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2007. All terms used but not defined elsewhere herein have the meaning
ascribed to them in that Annual Report. The year end condensed consolidated
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America.
2.
Share-Based Payment Arrangements
On
January 1, 2007, the Company began to estimate the expected term of stock
options granted to employees and officers and directors by using historical data
for each of those two groups. The expected term for options granted to the two
groups mentioned above was 5.33 and 8 years, respectively in 2008 and 5.25 and
7.5 years, respectively in 2007. The expected term for stock options granted to
non-employee consultants was ten years, which was equal to the contractual term
of those options. The expected volatility of stock options granted to each group
was calculated based upon the periods of the respective expected terms. The
Company has never paid dividends and does not expect to pay dividends in the
future. Therefore, the Company’s 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.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
The
assumptions used by the Company in the Black-Scholes option pricing model to
estimate the grant date fair values of stock options granted under the Plans
during the three months ended March 31, 2008 and 2007 were as
follows:
|
|
For
the Three Months Ended
March
31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
Expected
volatility
|
|
66%
– 90%
|
|
55%
– 89%
|
Expected
dividends
|
|
zero
|
|
zero
|
Expected
term (in years)
|
|
5.33
– 10
|
|
5.25
– 10
|
Weighted
average expected term (years)
|
|
5.58
|
|
9.0
|
Risk-free
rate
|
|
3.08%
– 3.71%
|
|
4.4%
– 4.5%
|
During
the three months ended March 31, 2008 and 2007, the fair value of shares
purchased under the Purchase Plans was 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 Three Months Ended
March
31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
Expected
volatility
|
|
154%
|
|
40%
|
Expected
dividends
|
|
zero
|
|
zero
|
Expected
term
|
|
6
months
|
|
6
months
|
Risk-free
rate
|
|
2.74%
|
|
5.1%
|
The total
fair value of shares under all of the Company’s share-based payment arrangements
that vested during the three months ended March 31, 2008 and 2007 was $3.9
million and $2.9 million, respectively; $2.0 million and $1.6 million,
respectively, of which was reported as research and development expense and $1.9
million and $1.3 million, respectively, of which was reported as general and
administrative expense.
No tax
benefit was recognized related to such compensation cost during the three months
ended March 31, 2008 and 2007 because the Company had a net loss for each of
those periods and the related deferred tax assets were fully offset by 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 three months ended March 31, 2008 and 2007.
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. The
Company incurred a net loss for the three months ended March 31, 2008 and 2007
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 each of those periods. The Company has made an
accounting policy decision to calculate windfall tax benefits/shortfalls for
purposes of diluted EPS calculation, excluding the impact of pro forma deferred
tax assets. This policy decision will apply when the Company has net
income.
3.
Fair Value Measurements
The
Company’s 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 Condensed Consolidated Balance Sheets in
accordance with Financial Accounting Standards Board (“FASB”) Statement
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 income.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
Investments
consisted of the following:
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
Short-term
|
|
|
|
|
|
|
Commercial
paper
|
|
$ |
78,832 |
|
|
$ |
81,170 |
|
Auction
rate securities
|
|
|
825 |
|
|
|
38,830 |
|
Total
short-term investments
|
|
|
79,657 |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
42,409 |
|
|
|
39,947 |
|
Auction rate securities
|
|
|
6,917 |
|
|
|
- |
|
Total
long-term investments
|
|
|
49,326 |
|
|
|
39,947 |
|
Total
investments
|
|
$ |
128,983 |
|
|
$ |
159,947 |
|
The
Company adopted FASB Statement 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. The Company has elected not to apply the fair value option to any
of its assets or liabilities.
The
Company also adopted FASB Statement 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 Financial Accounting Standards
Board Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157,”
the Company will defer the adoption of FAS 157 for its nonfinancial assets and
nonfinancial liabilities, until January 1, 2009. The Company is currently
evaluating the impact of FAS 157 for nonfinancial assets and nonfinancial
liabilities, and the adoption of this statement is not expected to have a
material effect on the Company’s financial position or results of
operations. The partial adoption of FAS 157 did not have a material
impact on the Company’s 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.
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
The
following table presents our available-for-sale investments measured at fair
value on a recurring basis as of March 31, 2008 classified by the SFAS
No. 157 valuation hierarchy (as discussed above):
|
|
Balance
at March 31, 2008
|
|
Fair
Value Measurements at Reporting Date Using
|
Description
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
22,192
|
|
$
|
22,192
|
|
$
|
-
|
|
$
|
-
|
Commercial
paper
|
|
|
121,241
|
|
|
-
|
|
|
121,241
|
|
|
-
|
Auction
rate securities
|
|
|
7,742
|
|
|
-
|
|
|
-
|
|
|
7,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151,175
|
|
$
|
22,192
|
|
$
|
121,241
|
|
$
|
7,742
|
At March 31, 2008 the company holds $7.7 million in auction rate
securities that were
originally issued with Aaa/AAA credit ratings. 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
the Company's auction rate securities because sell orders exceeded buy
orders, and the Company
was 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 $4.0 million of securities collateralized by student loan obligations subsidized by the U.S.
government, $1.8 million
of municipal bonds and $1.9 million of investment company preferred stock,
and do not include
mortgage-backed instruments. As of March 31, 2008, Progenics has 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
instrments.
Progenics
continues to monitor the market for auction rate securities and consider its
effect (if any) on the fair market value of its investments. If market
conditions do not recover, the Company may be required to record additional
impairment charges in 2008. Progenics believes it will have the ability to hold
any auction rate securities for which auctions fail until the market recovers.
It does not anticipate having to sell these securities in order to operate its
business. The Company does not believe the carrying values of these auction
rate securities are permanently impaired and therefore expects the positions
will eventually be liquidated without significant loss.
The
valuation of these securities is based on Level 3 unobservable inputs which
consist of recommended fair values based on 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, the Company has determined a temporary impairment in the valuation
of these securities of $0.4 million which is reflected as a part of other
comprehensive income on its balance sheet. These securities are held "available
for sale" in conformity with FAS 115, “Accounting for Certain Investments in
Debt and Equity Securities,” and the unrealized loss is included in other
comprehensive income 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, the Company has classified $6.9 million of these
auction rate securities as long-term assets on its balance sheet. The Company
has classified the remaining $0.8 million as short-term securities, as an
auction rate security was redeemed at par by the issuer in April
2008.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
For those
financial instruments with significant Level 3 inputs, the following table
summarizes the activity for the period by investment type:
|
|
Fair
Value Measurements Using Significant Unobservable Inputs
(Level
3)
|
|
Description
|
|
Auction
Rate Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$ |
- |
|
|
$ |
- |
|
Transfers
in to Level 3
|
|
|
8,150 |
|
|
|
8,150 |
|
Total
realized/unrealized losses
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
- |
|
|
|
- |
|
Included
in comprehensive income
|
|
|
(408 |
) |
|
|
(408 |
) |
Purchases,
issuances and settlements
|
|
|
- |
|
|
|
- |
|
Ending
Balance
|
|
$ |
7,742 |
|
|
$ |
7,742 |
|
Total
amount of unrealized 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
|
|
$ |
(408 |
) |
|
$ |
(408 |
) |
4.
Prepaid Research and Development
On
January 1, 2008, the Company adopted Emerging Issues Task Force 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
FASB Statement 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 in the quarter ended
March 31, 2008, the Company has 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 impact of applying EITF 07-3 did not have
a material impact on the financial position or results of operations for the
quarter ended March 31, 2008.
5.
Accounts Receivable
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
National Institutes of Health
|
|
$ |
1,589 |
|
|
$ |
1,956 |
|
Other
|
|
|
18 |
|
|
|
39 |
|
Total
|
|
$ |
1,607 |
|
|
$ |
1,995 |
|
6. Accounts Payable and
Accrued Expenses
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
Accounts
payable
|
|
$ |
1,328 |
|
|
$ |
1,158 |
|
Accrued
consulting and clinical trial costs
|
|
|
8,452 |
|
|
|
10,848 |
|
Accrued
payroll and related costs
|
|
|
1,438 |
|
|
|
1,489 |
|
Legal
and professional fees
|
|
|
1,478 |
|
|
|
1,127 |
|
Other
|
|
|
0 |
|
|
|
143 |
|
Total
|
|
$ |
12,696 |
|
|
$ |
14,765 |
|
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
7. Revenue
Recognition
On
December 23, 2005, the Company entered into the Collaboration Agreement with
Wyeth (collectively, the “Parties”) for the purpose of developing and
commercializing RELISTOR, the Company’s lead investigational drug, for the
treatment of opioid-induced side effects, including constipation and
post-operative ileus, associated with chronic pain and in patients receiving
palliative care. The Collaboration Agreement involves three formulations of
RELISTOR: (i) a subcutaneous formulation to be used in patients with
opioid-induced constipation, (ii) an intravenous formulation to be used in
patients with post-operative ileus and (iii) an oral formulation to be used in
patients with opioid-induced constipation.
The
collaboration is being administered by a Joint Steering Committee and a Joint
Development Committee, each with equal representation by the Parties. The
Steering Committee is responsible for coordinating the key activities of Wyeth
and the Company under the Collaboration Agreement. The Development Committee is
responsible for overseeing, coordinating and expediting the development of
RELISTOR by the Parties. In addition, a Joint Commercialization Committee was
established, composed of representatives of both Wyeth and the Company in number
and function according to each of their responsibilities, which is responsible
for facilitating open communication between Wyeth and the Company on matters
relating to the commercialization of products.
The
Company has assessed the nature of its involvement with the Committees. The
Company’s involvement in the Steering and Development Committees is one of
several obligations to develop the subcutaneous and intravenous formulations of
RELISTOR through regulatory approval in the U.S. The Company has combined the
committee obligations with the other development obligations and is accounting
for these obligations during the development phase as a single unit of
accounting. After the period during which Progenics has developmental
responsibilities, however, the Company has assessed that the nature of its
involvement with the Committees will be a right, rather than an obligation. The
Company’s assessment is based upon the fact the Company negotiated to be on the
Committees as an accommodation for its granting of the license for RELISTOR to
Wyeth. Wyeth has been granted by the Company an exclusive license (even as to
the Company) 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
Collaboration Agreement, Progenics granted to Wyeth an exclusive, worldwide
license, even as to Progenics, to develop and commercialize RELISTOR. Progenics
is responsible for developing the subcutaneous and intravenous formulations in
the United States, until the drug formulations receive regulatory approval.
Progenics has transferred to Wyeth all existing supply agreements with third
parties for RELISTOR and has sublicensed intellectual property rights to
permit Wyeth to manufacture or have manufactured RELISTOR, during the
development and commercialization phases of the Collaboration Agreement, in both
bulk and finished form for all products worldwide. Progenics has no further
manufacturing obligations under the Collaboration Agreement. Progenics has and
will continue to transfer to Wyeth all know-how, as defined, related to
RELISTOR. Based upon the Company’s research and development programs, such
period will cease upon completion of the Company’s development obligations under
the Collaboration Agreement.
Wyeth is
developing the oral formulation worldwide and the subcutaneous and intravenous
formulations outside the U.S. In the event the Joint Steering Committee approves
any formulation of RELISTOR other than subcutaneous, intravenous or oral or any
other indication for a product using any formulation of RELISTOR, Wyeth will be
responsible for development of such products, including conducting clinical
trials and obtaining and maintaining regulatory approval and the Company will
receive royalties on all sales of such products.
Wyeth is
responsible for the commercialization of the subcutaneous, intravenous and oral
products, and any other products developed upon approval by the Joint Steering
Committee, throughout the world. Wyeth will 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 the
Company. Decisions with respect to commercialization of any products developed
under the Collaboration Agreement will be made solely by Wyeth.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
Wyeth
granted to Progenics an option (the “Co-Promotion Option”) to enter into a
Co-Promotion Agreement to co-promote any of the products developed under the
Collaboration Agreement, subject to certain conditions. The Company may exercise
this option on an annual basis. The Company has not exercised the
option in connection with the initial commercialization of RELISTOR, and as of
March 31, 2008 has not determined when it will exercise it, if at all. The
extent of the Company’s co-promotion activities and the fee that the Company
will be paid by Wyeth for these activities will be established if, as and when
the Company exercises its option. Wyeth will record all sales of products
worldwide (including those sold by the Company, if any, under a Co-Promotion
Agreement). Wyeth may terminate any Co-Promotion Agreement if a top 15
pharmaceutical company acquires control of Progenics. Progenics’ potential right
to commercialize any product, including its Co-Promotion Option, is not
essential to the usefulness of the already delivered products or services (i.e., Progenics’ development
obligations) and Progenics’ failure to fulfill its co-promotion obligations
would not result in a full or partial refund of any payments made by Wyeth to
Progenics or reduce the consideration due to Progenics by Wyeth or give Wyeth
the right to reject the products or services previously delivered by
Progenics.
The
Company is recognizing revenue in connection with the Collaboration Agreement
under the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104
(“SAB 104”) “Revenue Recognition” and will apply the Substantive Milestone
Method. In accordance with the Emerging Issues Task Force Issue No. 00-21 (“EITF
00-21”) “Accounting for Revenue Arrangements with Multiple Deliverables,” all of
the Company’s deliverables under the 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 in the U.S., represent one unit of accounting since
none of those components have 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 million, for which the
Company deferred revenue at December 31, 2005. Subsequently, the Company is
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. The Company expects that period to extend
through 2009. The Company is recognizing revenue using the proportionate
performance method since it can reasonably estimate the level of effort required
to complete its performance obligations under the Collaboration Agreement with
Wyeth 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 the
Company 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 the Company to complete its 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 the Company has no obligation to develop the
subcutaneous and intravenous formulations of RELISTOR outside the U.S. or the
oral formulation at all and has 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 the Company’s
development obligations. If Wyeth terminates the Collaboration Agreement in
accordance with its terms, the Company will recognize any unamortized remainder
of the upfront payment at the time of the termination.
The
amounts of the upfront license payment that the Company 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, however, the estimate of the Company’s total
remaining effort to complete its development obligations was increased
significantly based upon a revised development budget approved by both the
Company and Wyeth. As a result, the period over which the Company’s 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 first quarter of 2008 declined
relative to that in the comparable period of 2007.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
Beginning
in January 2006, costs for the development of RELISTOR incurred by Wyeth or the
Company are being paid by Wyeth. Wyeth has the right once annually to engage an
independent public accounting firm to audit expenses for which the Company has
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. The Company is recognizing as research and development revenue
from collaborator, amounts received from Wyeth for reimbursement of the
Company’s development expenses for RELISTOR as incurred under the development
plan agreed to between the Company and Wyeth. In addition to the upfront payment
and reimbursement of the Company’s development costs, Wyeth has made or will
make the following payments to the Company: (i) development and sales milestones
and contingent payments, consisting of defined non-refundable, non-creditable
payments, totaling $356.5 million, including clinical and regulatory events and
combined annual worldwide 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. Upon achievement of defined
substantive development milestones by the Company for the subcutaneous and
intravenous formulations in the U.S., the milestone payments will be recognized
as revenue. Recognition of revenue for developmental contingent events related
to the subcutaneous and intravenous formulations outside the U.S. and for the
oral formulation, which are the responsibility of Wyeth, will be recognized as
revenue when Wyeth achieves those events, if they occur subsequent to completion
by the Company of its development obligations, since Progenics would have no
further obligations related to those products. Otherwise, if Wyeth achieves any
of those events before the Company has completed its development obligations,
recognition of revenue for the Wyeth contingent events will be recognized over
the period from the effective date of the Collaboration Agreement to the
completion of the Company’s development obligations. All sales milestones and
royalties will be recognized as revenue when earned.
During
the three months ended March 31, 2008 and 2007, the Company recognized $3.2
million and $5.0 million, respectively, of revenue from the $60 million upfront
payment and $8.9 million and $10.5 million, respectively, as reimbursement for
its out-of-pocket development costs, including its labor costs. In March 2007,
the Company earned $9.0 million 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 Company considered those milestones to be substantive based on (i) the
significant degree of risk, at the inception of the Collaboration Agreement,
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
Collaboration Agreement and amount of effort expended to achieve the milestones;
and (iii) the passage of ten and seventeen months, respectively, from inception
of the Collaboration Agreement to the achievement of those milestones.
Therefore, the Company recognized the milestone payments as revenue in the
respective periods in which the milestones were earned. As of March 31, 2008,
relative to the $60 million upfront license payment received from Wyeth, the
Company has recorded $14.9 million as short-term deferred revenue and $6.6
million as long-term deferred revenue, which is expected to be recognized as
revenue through 2009. In addition, at March 31, 2008, the Company recorded $1.2
million of short term deferred revenue related to payments we have received from
Wyeth for development costs.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30
days in the case of breach of a payment obligation) upon material breach that is
not cured. Wyeth may, with or without cause, following the second anniversary of
the first commercial sale, as defined, of the first commercial product in the
U.S., terminate the Collaboration Agreement by providing Progenics with at least
360 days prior written notice of such termination. Wyeth may also terminate the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90 days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license the
Company granted to Wyeth will depend on the party that initiates the termination
and the reason for the termination.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
8. Net Loss Per
Share
The
Company’s basic net loss per share amounts have been computed by dividing net
loss by the weighted-average number of common shares outstanding during the
respective periods. For the three months ended March 31, 2008 and 2007, the
Company 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
|
|
Three
months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(15,485
|
)
|
29,834
|
|
$
|
(0.52
|
)
|
Three
months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(10,433
|
)
|
26,365
|
|
$
|
(0.40
|
)
|
For the
three months ended March 31, 2008 and 2007, potential common shares, which have
been excluded from diluted per share amounts because their effect would have
been anti-dilutive, include the following:
|
Three
Months Ended March 31,
|
|
2008
|
|
2007
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Number
|
Weighted
Average
Exercise
Price
|
Stock
options
|
4,726
|
|
$
|
18.12
|
|
4,689
|
$
|
16.77
|
Nonvested
shares
|
525
|
|
|
|
|
395
|
|
|
Total
|
5,251
|
|
|
|
|
5,084
|
|
|
9. 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. The Company’s comprehensive loss includes net loss adjusted for the
change in net unrealized gain or loss on marketable securities. For the three
months ended March 31, 2008 and 2007, the components of comprehensive loss
were:
|
|
Three
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
Net
loss
|
|
$
|
(15,485
|
)
|
$
|
(10,433
|
)
|
Change
in net unrealized gain on marketable securities
|
|
|
386
|
|
|
79
|
|
Comprehensive
loss
|
|
$
|
(15,099
|
)
|
$
|
(10,354
|
)
|
10. Commitments and
Contingencies
In the
ordinary course of its business, the Company enters into agreements with third
parties that include indemnification provisions which, in its judgment, are
normal and customary for companies in its industry sector. These agreements are
typically with business partners, clinical sites and suppliers. Pursuant to
these agreements, the Company generally agrees to indemnify, hold harmless and
reimburse the indemnified parties for losses suffered or incurred by the
indemnified parties with respect to the Company’s products or product
candidates, use of such products or other actions taken or omitted by the
Company. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is not limited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification provisions. As a result, the estimated fair
value of liabilities relating to these provisions is minimal. Accordingly, the
Company has no liabilities recorded for these provisions as of March 31,
2008.
PROGENICS PHARMACEUTICALS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – continued
(unaudited)
(amounts
in thousands, except per share amounts or unless otherwise noted)
11. Impact of Recently Issued Accounting
Standards
In March
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS 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 to enable investors to better understand 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. The Company does not expect the impact of the
adoption of FAS 161 to have a material effect on its financial position or
results of operations.
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Special
Note Regarding Forward-Looking Statements
Certain
statements in this Quarterly Report on Form 10-Q constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Any statements contained herein that are not statements of historical
fact may be forward-looking statements. When we use the words ‘anticipates,’
‘plans,’ ‘expects’ and similar expressions, it is identifying forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements, or industry results, to be materially different from any
expected future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the risks
associated with our dependence on Wyeth to fund and to conduct clinical testing,
to make certain regulatory filings and to manufacture and market products
containing methylnaltrexone, the uncertainties associated with product
development, the risk that clinical trials will not commence, proceed or be
completed as planned, the risk that our product candidates will not receive
marketing approval from regulators, the risks and uncertainties associated with
the dependence upon the actions of our corporate, academic and other
collaborators and of government regulatory agencies, the risk that our licenses
to intellectual property may be terminated because of our failure to have
satisfied performance milestones, the risk that product candidates that appear
promising in early clinical trials are later found not to work effectively or
are not safe, the risk that we may not be able to manufacture commercial
quantities of our products, the risk that our products, if approved for
marketing, do not gain sufficient market acceptance to justify development and
commercialization costs, the risk that we will not be able to obtain funding
necessary to conduct our operations, the uncertainty of future profitability and
other factors set forth more fully in our Annual Report on Form 10-K for the
year ended December 31, 2007 and in this Form 10-Q, including those described
under the caption Risk
Factors, and other periodic filings with the U.S. Securities and Exchange
Commission, or SEC, to which investors are referred for further
information.
We do not
have a policy of updating or revising forward-looking statements, and we assume
no obligation to update any forward-looking statements contained in this Form
10-Q as a result of new information or future events or developments. Thus, you
should not assume that our silence over time means that actual events are
bearing out as expressed or implied in such forward-looking
statements.
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 gastroenterology, virology and oncology. We
commenced principal operations in late 1988, and since that time we have been
engaged primarily in research and development efforts, development of our
manufacturing capabilities, establishment of corporate collaborations and
raising capital. We do not currently derive revenue from any commercial
products. In order to commercialize the principal products that we have under
development, we have been and continue to be required to address a number of
technological and clinical challenges and comply with comprehensive regulatory
requirements.
Gastroenterology
Our lead
product is RELISTOR™ (methylnaltrexone bromide). On April 24, 2008 RELISTOR
subcutaneous injection was approved by the U.S. Food and Drug Administration
(“FDA”) for sale in the United States for the treatment of opioid-induced
constipation (“OIC”) in patients with advanced illness who are receiving
palliative care, when response to laxative therapy has not been sufficient. Our
collaboration partner, Wyeth Pharmaceuticals (“Wyeth”), plans to launch the sale
of RELISTOR subcutaneous injection in the United States in June
2008.
RELISTOR
subcutaneous injection received marketing approval from Health Canada in March
2008 for the treatment of OIC in patients with advanced illness receiving
palliative care. A launch of RELISTOR subcutaneous injection sales in Canada is
planned by Wyeth for June 2008.
A
Positive Opinion for RELISTOR subcutaneous injection was received on April 24,
2008 from the Committee for Medicinal Products for Human Use (“CHMP”), the
scientific committee of the European Medicines Agency (“EMEA”), for the
treatment of opioid-induced constipation in advanced illness patients who are
receiving palliative care when response to usual laxative therapy has not been
sufficient. Final action by the European Commission on the marketing
application to the EMEA is expected by mid-2008.
Marketing
applications for RELISTOR subcutaneous injection are also pending in Australia
and other countries.
Development
and commercialization of RELISTOR is being conducted under a license and
co-development agreement (“Collaboration Agreement”) between us and Wyeth. 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 will be
reimbursed by Wyeth for expenses we incur in connection with the development of
RELISTOR under an agreed-upon development plan and (iv) will receive royalties
and commercialization milestone payments. These payments will depend
on the successful 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 will be funded by Wyeth.
In May 2007, we earned $9.0 million in
milestone payments under our Collaboration Agreement with Wyeth 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 for
the FDA approval of subcutaneous RELISTOR.
We are
also developing, in collaboration with Wyeth, an intravenous formulation of
RELISTOR for the management of post-operative ileus (“POI”), a temporary
impairment of the
gastrointestinal tract function. Development of the intravenous formulation of
RELISTOR for POI has been granted “Fast Track” status from the FDA, which
facilitates development and expedites regulatory review of drugs intended to
address an unmet medical need for serious or life-threatening
conditions.
We and
Wyeth have conducted two global pivotal phase 3 clinical trials to evaluate the
safety and efficacy of intravenous RELISTOR for the treatment of POI in patients
recovering from segmental colectomy surgical procedures. In October 2006, we
earned a $5.0 million milestone payment under the Collaboration Agreement in
connection with the initiation of the first phase 3 clinical trial. In October
2007, a third phase 3 intravenous RELISTOR study, being conducted by Wyeth, was
initiated in individuals with POI following a ventral hernia repair via
laparotomy or laparoscopy.
In March
2008, we reported that preliminary results from the phase 3 segmental colectomy
clinical trial conducted by Wyeth showed that treatment did not achieve the
primary end point of the study: a reduction in time to recovery of
gastrointestinal function (i.e., time to first bowel
movement) as compared to placebo. The study also did not show that secondary
measures of surgical recovery, including time to discharge eligibility, were
superior to placebo. We and Wyeth are conducting the necessary analyses to
determine greater clarity regarding the outcome of this clinical study, whose
preliminary findings are inconsistent with results demonstrated in our previous
phase 2 study of intravenous methylnaltrexone for the management of
postoperative ileus. We are leading the second phase 3 trial of intravenous
methylnaltrexone for management of POI, which is similar in design to the Wyeth
study, and expect results of that trial to be reported by midyear
2008.
We and
Wyeth are also developing an oral formulation of RELISTOR for the treatment of
OIC in patients with chronic pain.
In March
2007, Wyeth began clinical testing of a new oral formulation of methylnaltrexone
for the treatment of OIC, and in July 2007 we and Wyeth announced positive
preliminary results from this phase 1 clinical trial. In October 2007, we and
Wyeth announced the initiation of two four-week phase 2 clinical trials to
evaluate daily dosing of this formulation and a different oral formulation in
individuals with chronic, non-malignant pain who are being treated with opioids
and are experiencing OIC. These studies are designed to evaluate these oral
formulations separately. We and Wyeth plan to assess the safety and
dose-response of oral methylnaltrexone as measured by the occurrence of
spontaneous bowel movements during the treatment period. We expect the studies
to assist in determining the formulation and doses to be advanced into phase 3
studies.
At
inception of the Collaboration Agreement, Wyeth paid to us a $60 million
non-refundable upfront payment. Wyeth has made $14.0 million in milestone
payments since that time and is obligated to make up to $342.5 million in
additional payments to us upon the achievement of milestones and contingent
events in the development and commercialization of RELISTOR. 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 (“FTE”s) devoted to the development project.
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. Wyeth is obligated to
pay to us royalties on the sale of RELISTOR by Wyeth throughout the world during
the applicable royalty periods.
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 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.
Virology
In the
area of virology, we are developing viral-entry inhibitors for Human
Immunodeficiency Virus (“HIV”), the virus that causes AIDS, and Hepatitis C
virus infection (“HCV”). These inhibitors are molecules designed to inhibit a
virus’ ability to enter certain types of immune cells and liver cells. In May
2007, we announced positive results from a phase 1b trial of an intravenous
formulation of our monoclonal antibody, PRO 140, in HIV-infected individuals. We
are also investigating a subcutaneous formulation of PRO 140 with the goal of
developing a long-acting, self-administered therapy for HIV infection. In
January 2008, we initiated the phase 2 clinical program for PRO 140, which will
involve both the intravenous and subcutaneous formulations. We are also engaged
in research regarding a vaccine against HIV infection.
Oncology
In the
area of prostate cancer, we are developing a human monoclonal antibody-drug
conjugate, consisting of a selectively targeted cytotoxic antibody directed
against prostate specific membrane antigen (“PSMA”), a protein found on the
surface of prostate cancer cells. We are also developing vaccines designed to
stimulate an immune response to PSMA. Our PSMA programs are conducted through
our wholly owned subsidiary, PSMA Development Company LLC (“PSMA LLC”), which
prior to April 2006 was a joint venture with Cytogen Corporation
(“Cytogen”).
In the
second quarter of 2007, we discontinued our GMK melanoma vaccine program. An
independent data monitoring committee recommended that treatment in the
European-based phase 3 trial, which began in 2001, be stopped because lack of
efficacy was observed after an interim analysis. We have subsequently terminated
our license agreement with Memorial Sloan-Kettering Cancer Center relating to
this program.
Results of
Operations (amounts in thousands)
Revenues:
Our
sources of revenue during the three months ended March 31, 2008 and 2007
included our collaboration with Wyeth, which was effective on January 1, 2006,
our research grants and contracts from the NIH and, to a small extent, our sale
of research reagents.
|
|
Three
Months Ended
March
31,
|
|
|
Sources
of Revenue
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Research
from collaborator
|
|
$ 12,110
|
|
$ 15,499
|
|
(22%)
|
Research
grants and contract
|
|
2,613
|
|
2,119
|
|
23
%
|
Product
sales
|
|
39
|
|
19
|
|
105%
|
Total
|
|
$ 14,762
|
|
$ 17,637
|
|
(16%)
|
Research
revenue from collaborator
Research
revenue from collaborator relates to our Collaboration Agreement with Wyeth.
During the three months ended March 31, 2008 and 2007, we recognized
$12,110 and $15,499, respectively, of revenue from Wyeth, including
$3,234 and $4,988, respectively, of the $60,000 upfront payment we received
upon entering into our collaboration in December 2005 and $8,876 and
$10,511, respectively, as reimbursement of our development expenses, including
our labor costs. From the inception of the Collaboration Agreement through March
31, 2008, we recognized $38,443 of revenue from the $60,000 upfront payment,
$83,537 as reimbursement for our out-of-pocket development costs, including our
labor costs and a total of $14,000 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 in the first
quarter of 2008 declined by $1,754 as compared to the first quarter of
2007.
Reimbursement
of development costs, including our labor costs, is recognized as revenue as the
costs are incurred under the development plan agreed to by us and
Wyeth. 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. We have analyzed the facts and circumstances
of the three milestones achieved since inception of the Collaboration Agreement
with Wyeth and believe that they met those criteria for revenue recognition upon
achievement of the respective milestones. See Critical Accounting Policies
–Revenue Recognition, below.
Research
grants and contract
Revenues
from research grants and contract from the NIH increased to $2,613 for the three
months ended March 31, 2008 from $2,119 for the three months ended March 31,
2007; $2,093 and $1,296 from grants and $520 and $823 from the contract awarded
to us by the NIH in September 2003 (the “NIH Contract”) for the three months
ended March 31, 2008 and 2007, respectively. The increase in grant revenue
resulted from fewer reimbursable expenses in 2007 than in 2008 on new and
continuing grants. Offsetting this increase was decreased activity under the NIH
Contract. The NIH Contract provides for the development of a prophylactic
vaccine 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 $28.6 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
September 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 March 31, 2008, we had recognized revenue of $13.8
million from this contract, including $180,000 for the achievement of two
milestones. We have recently been informed by the NIH that it has decided not to
fund this Contract beyond September 2008. To continue to develop the HIV vaccine
after that time, therefore, we will need to provide funding on our own or obtain
new governmental or other funding. If we choose not to provide our own or cannot
secure governmental or other funding, we will discontinue this
project.
Product
sales
Revenues
from product sales increased to $39 for the three months ended March 31, 2008
from $19 for the three months ended March 31, 2007. We received more orders for
research reagents during 2008.
Expenses:
Research
and Development Expenses:
Research
and development expenses include scientific labor, supplies, facility costs,
clinical trial costs, product manufacturing costs and license fees. Research and
development expenses increased to $23,939 for the three months ended March 31,
2008 from $23,171 for the three months ended March 31, 2007, as
follows:
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Salaries
and benefits (cash)
|
|
$6,559
|
|
$5,524
|
|
19%
|
The
increase was due to company-wide compensation increases and an increase in
average headcount to 200 from 180 for the three months ended March 31, 2008 and
2007, respectively, in the research and development, manufacturing and clinical
departments.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Share-based
compensation (non-cash)
|
|
$2,012
|
|
$1,615
|
|
25%
|
The
amount of non-cash compensation expense increases/decreases commensurate with
headcount levels and is expected to fluctuate in the future as such levels
change. (See Critical
Accounting Policies − Share-Based Payment Arrangements, below).
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Clinical
trial costs
|
|
$4,863
|
|
$4,649
|
|
5%
|
Increase
primarily related to HIV ($769) and RELISTOR ($363), due to increased PRO 140
and methylnaltrexone clinical trial activities in the 2008 period,
respectively. These increases were partially offset by decreases in RELISTOR
($896), due to regulatory filing fees incurred in the first quarter of 2007, but
not in 2008, related to the subcutaneous formulation, Cancer ($21) due to
termination of the GMK study in the second quarter of 2007, and Other projects
($1). During the remainder of 2008, clinical trial costs are expected to
decrease as clinical trials of RELISTOR conclude and we continue the phase 2
trial of PRO 140.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Laboratory
supplies
|
|
$1,483
|
|
$1,657
|
|
(11%)
|
Decrease
in RELISTOR ($182), due to purchase of less RELISTOR drug in the 2008 period
than in the 2007 period and Cancer ($22), due to decrease in basic research in
2008. The decreases were partially offset by increases in Other projects ($28)
and HIV-related costs ($2). Laboratory supply costs for HIV, Cancer and Other
projects related costs are expected to increase during the remainder of
2008.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Contract
manufacturing and subcontractors
|
|
$4,666
|
|
$6,094
|
|
(23%)
|
Decrease
in Cancer ($2,068), primarily due to contract manufacturing expenses for PSMA in
the first quarter of 2007, but not in 2008, partially offset by increases in
Other projects ($395), HIV ($220) and RELISTOR ($25). 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. We expect these costs to
increase during the remainder of 2008 as we expand our clinical trials for PRO
140, PSMA and Other projects, while costs for RELISTOR are expected to be
similar to those in 2007.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Consultants
|
|
$1,615
|
|
$1,571
|
|
3%
|
Increases
in Cancer ($276), Other projects ($124) and HIV ($94), partially offset by a
decrease in RELISTOR ($450). 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. During the
remainder of 2008, consultant expenses are expected to change approximately
proportionately with spending levels for all of our research and development
programs.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
License
fees
|
|
$1,149
|
|
$750
|
|
53%
|
Increase
primarily related to payments in the 2008 period (but not in the 2007
period) related to our HIV program ($1,000) and RELISTOR ($10), partially
offset by a decrease in Cancer ($611) related to payments to
Cytogen.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2007
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Other
operating expenses
|
|
$1,592
|
|
$1,311
|
|
21%
|
Increase
primarily due to expenses related to rent ($262), facilities ($10) and other
operating expenses ($74), partially offset by decreases in seminar costs ($22),
travel ($17) and insurance ($26). During the remainder of 2008, operating
expenses are expected to increase over those of 2007, due to higher rent and
facility expenses.
A major
portion of our spending has been, and we expect will continue to be, associated
with RELISTOR, although beginning in 2006, Wyeth has been reimbursing us for
development expenses we incur related to RELISTOR under the development plan
agreed to between us and Wyeth.
General
and Administrative Expenses:
General
and administrative expenses increased to $7,152 for the three months ended
March 31, 2008 from $6,276 for the three months ended March 31, 2007, as
follows:
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Salaries
and benefits (cash)
|
|
$2,258
|
|
$1,958
|
|
15%
|
Increase
due to compensation increases and an increase in average headcount to 50 from 42
in the general and administrative departments for the three months ended March
31, 2008 and 2007, respectively.
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Share-based
compensation (non-cash)
|
|
$1,900
|
|
$1,333
|
|
43%
|
The
amount of non-cash compensation expense increases/decreases commensurate with
headcount levels and is expected to fluctuate in the future as such levels
change (see Critical
Accounting Policies − Share-Based Payment Arrangements,
below).
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Consulting
and professional fees
|
|
$1,870
|
|
$1,840
|
|
2%
|
Increase
due primarily to increases in legal and patent fees ($60), recruiting ($38) and
other miscellaneous costs ($44). The increases were partially offset by
decreases in consulting fees ($19) and audit and tax fees
($93).
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Other
operating expenses
|
|
$1,124
|
|
$1,145
|
|
(2%)
|
Decrease
in investor relations ($54), insurance ($25), travel ($10) and other operating
expenses ($16), which was partially offset by an increase in rent ($84) due to
higher rent and facility costs.
We expect
general and administrative expenses during the remainder of 2008 to remain at
approximately 2007 levels.
Depreciation
and Amortization:
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Depreciation and
Amortization |
|
$1,114
|
|
$492
|
|
126%
|
Depreciation
expense increased to $1,114 for the three months ended March 31, 2008 from $492
for the three months ended March 31, 2007, due to purchases of capital assets
and additional leasehold improvements made after March 31, 2007.
Other
Income:
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Change
|
|
|
|
|
|
|
|
Other Income |
|
$1,958
|
|
$1,869
|
|
5%
|
Interest
income increased to $1,958 for the three months ended March 31, 2008 from $1,869
for the three months ended March 31, 2007. Interest income, as reported, is
primarily the result of investment income from our marketable securities,
increased by the amortization of premiums we paid or decreased by the
amortization of discounts we received for those marketable securities. For the
three months ended March 31, 2008 and 2007, investment income increased to
$2,053 from $1,820, respectively, due to a higher average balance of cash
equivalents and marketable securities in 2008 than in 2007. Amortization of
discounts net of premiums, which is included in interest income, decreased to
($95) from $49 for the three months ended March 31, 2008 and 2007,
respectively.
Net
Loss:
Our net
loss was $15,485 for the three months ended March 31, 2008 and $10,433 for the
three months ended March 31, 2007.
Liquidity
and Capital Resources
Overview
We have
to date generated no meaningful amounts of product revenue, and consequently we
have relied principally on external funding 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, the proceeds from the exercise of
outstanding options and warrants and the sale of our common stock under our
Employee Stock Purchase Plans. At March 31, 2008, we had cash, cash equivalents
and marketable securities, including non-current portion, totaling $155.0
million compared with $170.4 million at December 31, 2007. Our existing cash,
cash equivalents and marketable securities at March 31, 2008 are sufficient to
fund current operations for at least one year. Our cash flow from operating
activities was negative for the three months ended March 31, 2008 and 2007 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 current collaboration with Wyeth provided us
with a $60 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 and Wyeth, which is
currently expected to continue through 2009. For the three months ended March
31, 2008 and 2007, we received $8.9 million and $10.5 million, respectively, of
reimbursement of our development costs. Since inception of the Collaboration
Agreement, Wyeth has made $14.0 million in milestone payments upon the
achievement of certain events which are specified in the Collaboration
Agreement. In May 2007, we earned $9.0 million of milestone payments related to
the acceptance for review of applications submitted for marketing approval of a
subcutaneous formulation of RELISTOR for the treatment of opioid-induced
constipation in patients receiving palliative care in the U.S. and the European
Union. Approval of that application resulted in our earning a $15.0 million
milestone payment from Wyeth under the Collaboration Agreement, which we will
recognize in the second quarter of 2008. Wyeth has also submitted
applications for the marketing of this product in Australia and Canada, the
latter of which was approved in March 2008. 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. Wyeth
is obligated to make up to $342.5 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. We will receive
royalty payments from Wyeth as the product is sold in the various countries
where marketing approval has been obtained. We will also receive royalty
payments upon the sale of all other products developed under the Collaboration
Agreement.
The
funding by Wyeth of our development costs for RELISTOR generally enhances our
ability to devote our current and future resources to our other research and
development programs. We may also enter into collaboration agreements with
respect to other of our product candidates. We cannot forecast with any degree
of certainty, however, which products or indications, if any, will be subject to
future collaborative arrangements, or how such arrangements would affect our
capital requirements. The consummation of other collaboration agreements would
further allow us to advance other projects with our current funds.
In
September 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
September 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 March 31, 2008, we had recognized revenue of $13.8
million from this contract, including $180,000 for the achievement of two
milestones. We have recently been informed by the NIH that it has decided not to
fund this contract beyond September 2008. To continue to develop the HIV vaccine
after that time, therefore, we will need to provide funding on our own or obtain
new government or other funding. If we choose not to provide our own or cannot
secure governmental or other funding, we will discontinue this
project.
We have
also been awarded grants from the NIH, which provide ongoing funding for a
portion of our virology and cancer research programs. Among those grants were an
aggregate of $4.4 million in grants made in 2006 and 2007, which extend over
two- and three-year periods. Two awards were made during 2005, which provide for
up to $3.0 million and $9.7 million in support of our HCV research program and
PRO 140 HIV development program, respectively, to be awarded over a three year
and a three and a half year period, respectively. Funding under all of our NIH
grants is subject to compliance with their terms, and is subject to annual
funding approvals. For the three months ended March 31, 2008 and 2007, we
recognized $2.1 million and $1.3 million, respectively, of revenue from all of
our NIH grants.
Changes
in Accounts receivable and Accounts payable for the three months ended March 31,
2008 and 2007 resulted from the timing of receipts from the NIH and payments
made to trade vendors in the normal course of business.
Other
than amounts to be received from Wyeth and from currently approved grants and
contracts, 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 products to the
commercial marketing stage.
Investing
Activities. We purchase and sell marketable securities in
order to provide funding for our operations and to achieve appreciation of our
unused cash in a low risk environment. Our marketable securities, which
include corporate debt securities, securities of government-sponsored entities
and auction rate securities, are classified as available for sale.
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 March 31, 2008, we continue to hold approximately $7.7 million 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 instrument. 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
effect (if any) on the fair market value of our investments. If market
conditions do not recover, we may be required to record additional impairment
charges in 2008, which may affect our financial condition, cash flows and
earnings. 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 and ongoing strength and quality of market credit and liquidity. We do not
believe the carrying values of these auction rate securities are permanently
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, other than
auction rate 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, other than auction rate 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 March 31, 2008.
Financing
Activities. During the three months ended March 31, 2008 and
2007, we received cash of $1.5 million and $2.8 million, respectively, from the
exercise of stock options by employees, directors and non-employee consultants
and from the sale of our common stock under our Employee Stock Purchase Plans.
The amount of cash we receive from these sources fluctuates commensurate with
the 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 our
Employee Stock Purchase Plans.
On April
24, 2008 RELISTOR subcutaneous injection was approved by the FDA for sale in the
United States for the treatment of OIC in patients with advanced illness who are
receiving palliative care, when response to laxative therapy has not been
sufficient. Unless we obtain regulatory approval from the FDA for at least one
of our other product candidates and/or enter into additional agreements with
corporate collaborators with respect to the development of our technologies, we
may 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 gastroenterology, 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
March 31, 2008 have been approximately $417.4 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 Agreement with Wyeth, however, 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 defines the totality of our obligations, are $44.2 million over the period
from April 1, 2008 to December 31, 2009.
For the
three months ended March 31, 2008 and 2007, research and development costs
incurred, by project, were as follows:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
(in
millions)
|
|
RELISTOR
|
|
$
|
9.3 |
|
|
$
|
10.2 |
|
HIV
|
|
|
9.7 |
|
|
|
6.4 |
|
Cancer
|
|
|
2.5 |
|
|
|
4.8 |
|
Other
programs
|
|
|
2.5 |
|
|
|
1.8 |
|
Total
|
|
$
|
24.0 |
|
|
$
|
23.2 |
|
Although
we expect that our spending on RELISTOR during the reminder of 2008 will be
similar to that in 2007, our cash outlays in accordance with the agreed upon
development plan will be reimbursed by Wyeth. We also expect that spending on
our PRO 140, PSMA and HCV programs will increase during the reminder of 2008 and
beyond. Consequently, we may require additional funding to continue our research
and product development programs, to conduct pre-clinical studies and clinical
trials, for operating expenses, to pursue regulatory approvals for our product
candidates, for the costs involved in filing and prosecuting patent applications
and enforcing or defending patent claims, if any, for the cost of product
in-licensing and for any possible acquisitions. Manufacturing and
commercialization expenses for RELISTOR will be funded by Wyeth. 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 corporate 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.
We are
continuing to conduct the PSMA research and development projects on our own
subsequent to our acquisition of PSMA LLC 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 three months ended March 31, 2008 and
2007, we have spent $0.8 million and $1.1 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.
On April
24, 2008, the Company announced that its Board of Directors had approved a share
repurchase program to acquire up to $15 million of its outstanding common
shares, funding for which will come from the $15 million milestone payment it
will receive from Wyeth for receiving U.S. marketing approval for RELISTOR.
Purchases under the program will be made at the Company’s discretion subject to
market conditions in the open-market or otherwise, and will be made in
accordance with the regulations of the U.S. Securities and Exchange Commission,
including Rule 10b-18. The Company has made no commitment to purchase any shares
and purchases may be discontinued at any time. Reacquired shares will
be held in treasury until redeployed or retired.
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
March 31, 2008 for future payments under these agreements:
|
|
|
|
|
Payments
due by March 31,
|
|
|
|
Total
|
|
|
2009
|
|
|
|
2010-2011 |
|
|
|
2012-2013 |
|
|
Thereafter
|
|
|
|
(in millions)
|
|
Operating
leases
|
|
$
|
7.3 |
|
|
$ |
3.1 |
|
|
$ |
2.9 |
|
|
$ |
0.9 |
|
|
$ |
0.4 |
|
License
and collaboration agreements (1)
|
|
|
98.0 |
|
|
|
1.9 |
|
|
|
5.9 |
|
|
|
12.1 |
|
|
|
78.1 |
|
Total
|
|
$ |
105.3 |
|
|
$ |
5.0 |
|
|
$ |
8.8 |
|
|
$ |
13.0 |
|
|
$ |
78.5 |
|
(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.
|
For each
of our programs, we periodically assess the scientific progress and merits of
the 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 lack of prospects for ultimate commercialization.
Because of the uncertainties associated with research and development of 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 our research and development projects in a timely
manner or our failure to enter into collaborative agreements could significantly
increase our capital requirements and adversely impact 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 our Annual Report on Form 10-K for the year ended December 31, 2007. 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 Securities and
Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”) “Revenue
Recognition,” Emerging Issues Task Force 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 three months ended March 31, 2008 and
2007, we also recognized revenue from government research grants and contracts,
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 Collaboration Agreement with Wyeth 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
Collaboration Agreement with Wyeth, 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, however, 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 first quarter of 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 Collaboration
Agreement with Wyeth, we have assessed the nature of our involvement with the
Joint Steering, Joint Development and Joint Commercialization Committees. 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 three 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 will continue to
develop the oral formulation and to commercialize all formulations, 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.
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 and May 2007, we
earned $5.0 million and $9.0 million, respectively, upon achievement of
non-refundable milestones anticipated in the Collaboration Agreement with Wyeth;
the first in connection with the commencement of a phase 3 clinical trial of the
intravenous formulation of RELISTOR and 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. We
considered those milestones to be substantive based on the significant degree of
risk at the inception of the 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 Agreement and amount of effort
expended to achieve the milestones; and the passage of ten and seventeen months,
respectively, from inception of the 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 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. If royalties are received when we have remaining performance
obligations, the royalty payments would be attributed to the services being
provided under the arrangement and, therefore, would be recognized 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.
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.
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 (nonvested shares) and shares issued under our Employee Stock
Purchase Plans (the “Purchase Plans”), which are compensatory under Statement of
Financial Accounting Standards No. 123 (revised 2004) (“SFAS No. 123(R)”)
“Share-Based Payment.” We account for share-based compensation to non-employees,
including non-qualified stock options and restricted stock (nonvested shares),
in accordance with Emerging Issues Task Force 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 SFAS No. 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. 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
SFAS No. 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.
·
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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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·
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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 three months ended March 31, 2008 and 2007, the
volatility of our common stock has been high, 66% - 90% and 55% - 89%,
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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·
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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 three months ended
March 31, 2008 and 2007, our expected term was calculated based upon
historical data related to exercise and post-termination cancellation
activity for each of two groups of recipients of stock options: employees,
and officers and directors. Accordingly, for grants made to each of the
groups mentioned above, we are using expected terms of 5.33 and 8 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. A shorter expected term would result in a lower
compensation expense.
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·
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We
have never paid dividends and do not expect to pay dividends in the
future. Therefore, our dividend rate is
zero.
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·
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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. 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 SFAS
No. 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).
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.
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.” 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 a net loss for the
three months ended March 31, 2008 and 2007, 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
three months ended March 31, 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 three months ended
March 31, 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 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. Our collaboration agreement with Wyeth
regarding RELISTOR in which Wyeth has assumed all of the financial
responsibility for further development will mitigate 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 Emerging Issues Task Force 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 FASB
Statement 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 in the quarter ended March 31,
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 impact of applying EITF 07-3 did not have a material impact
on the financial position or results of operations for the quarter ended March
31, 2008.
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
Condensed Consolidated Balance Sheets in accordance with Financial Accounting
Standards Board (“FASB”) Statement 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
income.
We
adopted FASB Statement 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 its
assets or liabilities.
We also
adopted FASB Statement 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 Financial Accounting Standards Board
Staff Position (FSP) 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 the adoption
of this statement is not expected 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:
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Level
1 - Valuations based on unadjusted quoted market prices in active markets
for identical securities.
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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.
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Level
3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement, and involve management
judgment.
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Impact
of Recently Issued Accounting Standards
In March
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS 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 to enable investors to better understand 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.
Item
3. 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
auction rate securities, corporate notes and issues of government sponsored
entities. Our investments totaled $149.8 million at March 31, 2008.
Approximately $120.6 million of these investments had fixed interest rates, and
$29.2 million had interest rates that were variable.
Due to
the conservative nature of our short-term fixed interest rate investments, we do
not believe that we have a material exposure to interest rate risk. Our
fixed-interest-rate long-term investments are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair 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 March 31, 2008 market interest rates would result in a decrease of
approximately $0.096 million in the market values of these
investments.
Our
marketable securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available for sale.
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 March 31, 2008, we continue to hold approximately $7.7 million 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
effect (if any) on the fair market value of our investments. If market
conditions do not recover, we may be required to record additional impairment
charges in 2008, which may affect our financial condition, cash flows and
earnings. 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 and ongoing strength and quality of market credit and liquidity. We do not
believe the carrying values of these auction rate securities are permanently
impaired and therefore expect the positions will eventually be liquidated
without significant loss.
We
maintain disclosure controls and procedures, as such term is defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Principal Financial and Accounting Officer, as appropriate, to allow
timely decisions regarding required disclosures. In designing and evaluating the
disclosure controls and procedures, our 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, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. We also established a Disclosure Committee
that consists of certain members of our senior management.
The
Disclosure Committee, under the supervision and with the participation of our
senior management, including our Chief Executive Officer and Principal Financial
and Accounting Officer, carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based upon their evaluation and subject to
the foregoing, the Chief Executive Officer and Principal Financial and
Accounting Officer concluded that our disclosure controls and procedures were
effective.
There
have been no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
— OTHER
INFORMATION
Our
business and operations entail a variety of serious risks and uncertainties,
including those described in Item 1A of our Form 10-K for the year ended
December 31, 2007. In addition, the following risk factors have changed during
the quarter ended March 31, 2008:
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 have
received marketing approvals in the U.S. and other countries for the sale of
RELISTOR subcutaneous injection for the treatment of OIC in patients with
advanced illness who are receiving palliative care, when response to laxative
therapy has not been sufficient. We continue to develop RELISTOR subcutaneous
injection for other indications, and, together with Wyeth, are also developing
intravenous and oral formulations of RELISTOR. We will have to
complete successfully additional clinical trials and obtain regulatory approvals
for these additional formulations and indications. Our other research and
development programs, including those related to PSMA, involve novel approaches
to human therapeutics. For example, our principal HIV product candidate, the
monoclonal antibody PRO 140, is designed to block viral entry. To our knowledge,
there are two approved drugs designed to treat HIV infection by blocking viral
entry (Trimeris’ FUZEON™ and Pfizer’s SELZENTRY™) that have been approved for
marketing in the U.S., but neither are monoclonal antibodies. There is little
precedent for the successful commercialization of products based on our
technologies. 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
have granted to Wyeth the exclusive rights to develop and commercialize
RELISTOR, our lead product candidate, and our resulting dependence upon Wyeth
exposes us to significant risks.
In
December 2005, we entered into a license and co-development agreement with
Wyeth. Under this agreement, we granted to Wyeth the exclusive worldwide right
to develop and commercialize RELISTOR. As a result, we are dependent upon Wyeth
to perform and fund development, including clinical testing, to make certain
regulatory filings and to manufacture and market products containing RELISTOR.
Our collaboration with Wyeth may not be scientifically, clinically or
commercially successful.
Revenues
from the sale of RELISTOR will depend almost entirely upon the efforts of Wyeth.
Wyeth has significant discretion in determining the efforts and resources it
applies to sales of the RELISTOR products and may not be effective in marketing
such products. In addition, Wyeth is a large, diversified pharmaceutical company
with global operations and its own corporate objectives, which may not be
consistent with our best interests. For example, Wyeth may change its strategic
focus or pursue alternative technologies in a manner that results in reduced
revenues to us. Our continued receipt of milestone and royalty payments from
Wyeth will be dependent on Wyeth’s commercialization efforts. As of March 31,
2008, we have received $14.0 million in milestone payments from Wyeth, and we
have subsequently earned an additional $15.0 million milestone payment for the
FDA approval of subcutaneous RELISTOR. We may not receive any further milestone
or royalty payments from Wyeth.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last-to-expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30
days in the case of breach of a payment obligation) upon material breach that is
not cured. Wyeth may, with or without cause, following the second anniversary of
the first commercial sale, as defined, of the first commercial product in the
U.S., terminate the Collaboration Agreement by providing Progenics with at least
360 days prior written notice of such termination. Wyeth may also terminate the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90 days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license we
granted to Wyeth will depend on the party that initiates the termination and the
reason for the termination.
If our
relationship with Wyeth were to terminate, we would have to either enter into a
license and co-development agreement with another party or continue to develop
and commercialize RELISTOR ourselves. We may not be able to enter into such an
agreement with another suitable company on acceptable terms or at all. To
continue to develop and commercialize RELISTOR on our own, we would have to
develop a 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
revenues and profitability.
A
termination of our relationship with Wyeth could seriously compromise the
RELISTOR program and possibly our other product candidates. For example, we
could experience significant delays and would have to assume full funding and
other responsibility for further development and commercialization.
Any of
these outcomes would result in delays in our ability to distribute RELISTOR and
would increase our expenses, which would have a material adverse effect on our
business, results of operations and financial condition.
Our
collaboration with Wyeth is multi-faceted and involves a complex sharing of
control over decisions, responsibilities, costs and benefits. There are numerous
potential sources of disagreement between us and Wyeth, including with respect
to product development, marketing strategies, manufacturing and supply issues
and rights relating to intellectual property. Wyeth has significantly greater
financial and managerial resources than we do, which it could draw upon in the
event of a dispute. A disagreement between Wyeth 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.
We are
required to obtain regulatory approval before our product candidates can be
marketed. To obtain marketing approval from regulatory authorities, 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, including the following:
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· the
results of pre-clinical studies may be inconclusive, or they may not be
indicative of results that will be obtained in human clinical trials;
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·
potential products may not have the desired efficacy or may have
undesirable side effects or other characteristics that preclude marketing
approval or
limit their commercial use if
approved;
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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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·
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 that are obtained in
later clinical trials. In addition, many of our investigational or experimental
drugs, such as PRO 140 and the PSMA product candidates, are at an early stage of
development. The successful commercialization of early stage product candidates
will require significant further 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 of the product, which could adversely affect our operating results and
credibility.
A
setback in our clinical development programs could adversely affect
us.
We and
Wyeth continue to conduct clinical trials of RELISTOR. If the results of
any of these ongoing trials or of other future trials of RELISTOR are not
satisfactory, or if we encounter problems enrolling subjects, or if clinical
trial supply issues or other difficulties arise, our entire RELISTOR development
program could be adversely affected, resulting in delays in commencing or
completing clinical trials or in making regulatory filing for further marketing
approval. The need to conduct additional clinical trials or significant
revisions to our clinical development plan would lead to delays in filing for
additional regulatory approvals necessary to market RELISTOR for additional
indications in other formulations and settings. If the clinical trials indicate
a serious problem with the safety or efficacy of a RELISTOR product, then Wyeth
has the right under our license and co-development agreement to terminate the
agreement or to stop the development or commercialization of the affected
products. Since RELISTOR is our most clinically advanced product, any setback of
these types would have a material adverse effect on our stock price and
business.
We are
conducting a clinical trial of PRO 140 and are planning trials of PSMA ADC and
prostate cancer vaccine candidates. If the results of our future clinical
studies of PRO 140 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.
We
have a history of operating losses, and we may never be profitable.
We have
incurred substantial losses since our inception. As of March 31, 2008, we had an
accumulated deficit of $269.5 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 to market our products and then commercializing, either
alone or with others, our products. We may not be able to develop and
commercialize products. Our operations may not be profitable even if any of our
products under development are commercialized.
We
are likely to need additional financing, but our access to capital funding is
uncertain.
As of
March 31, 2008, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $155.0 million. During the three months
ended March 31, 2008, we had a net loss of $15.5 million and cash used in
operating activities was $16.4 million. Our accumulated deficit is expected to
increase in the future.
Under our
agreement with Wyeth, Wyeth is responsible for all future development and
commercialization costs relating to RELISTOR starting January 1, 2006. As a
result, although our spending on RELISTOR has been significant during the first
quarter of 2008 and 2007 and is expected to continue at a similar level in the
future, our net expenses for RELISTOR have been and will continue to be
reimbursed by Wyeth.
With
regard to our other product candidates, we expect that we will continue to incur
significant expenditures for their development, and we do not have committed
external sources of funding for most of these projects. These expenditures will
be funded from our cash on hand, or we may seek additional external funding for
these expenditures, most likely through collaborative agreements, or other
license or sale transactions, with one or more pharmaceutical companies, through
the issuance and sale of securities or through additional government grants or
contracts. We cannot predict with any certainty when we will need additional
funds or how much we will need or if additional funds will be available to us.
Our need for future funding will depend on numerous factors, many of which are
outside our control.
Our
access to capital funding is always uncertain. 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 may 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 our existing stockholders. If we raise additional funds by selling
equity securities, our current stockholders will be diluted, and new investors
could have rights superior to our existing stockholders. If we raise funds by
selling debt securities, we could be subject to restrictive covenants and
significant repayment obligations.
We
believe that existing balances of cash, cash equivalents and marketable
securities and cash generated from operations are sufficient to finance our
current operations and working capital requirements on both a short-term and
long-term basis. We cannot, however, predict the amount or timing of our need
for additional funds under various circumstances, which could include new
product development projects, other opportunities or other factors that may
require us to raise additional funds in the future. Purchases of our common
shares pursuant to our recently announced $15 million share repurchase program
would reduce the amount of cash on hand available for unforeseen
needs.
Our
marketable securities, which include corporate debt securities, securities of
government-sponsored entities and auction rate securities, are classified as
available for sale.
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 March 31, 2008, we continue to hold approximately $7.7 million 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
effect (if any) on the fair market value of our investments. If market
conditions do not recover, we may be required to record additional impairment
charges in 2008, which may affect our financial condition, cash flows and
earnings. 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 and ongoing strength and quality of market credit and liquidity. We do not
believe the carrying values of these auction rate securities are permanently
impaired and therefore expect the positions will eventually be liquidated
without significant loss.
Our
clinical trials could take longer than we expect.
Although
for planning purposes we forecast the commencement and completion of clinical
trials, and have included many of those forecasts in reports filed with the SEC
and in other public disclosures, the actual timing of these events can vary
dramatically. 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:
·
|
deaths
or other adverse medical events involving subjects in our clinical
trials;
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·
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regulatory
or patent issues;
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·
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interim
or final results of ongoing clinical
trials;
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·
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failure
to enroll clinical sites as
expected;
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·
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competition
for enrollment from clinical trials conducted by others in similar
indications;
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·
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scheduling
conflicts with participating clinicians and clinical institutions;
and
|
·
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manufacturing
problems.
|
In
addition, we may need to delay or suspend our clinical trials if we are unable
to obtain additional funding when needed. Clinical trials involving our product
candidates may not commence or be completed as forecasted.
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. We will have less control over the timing and other aspects of these
clinical trials than if we conducted them entirely on our own.
As a
result of these and other factors, our clinical trials may not commence or be
completed as we expect or may not be conducted successfully, in which event
investors’ confidence in our ability to develop products may be impaired and our
stock price may decline.
Our
product candidates may not obtain regulatory approvals needed for
marketing.
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:
·
|
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);
|
·
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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;
|
·
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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 we or our collaborators might experience
manufacturing problems, either of which could result in subsequent
withdrawal of marketing approval, reformulation of the product, additional
pre-clinical testing or clinical trials, changes in labeling of the
product or the need for additional marketing applications;
and
|
·
|
we
and our collaborators will be subject to ongoing FDA obligations and
continuous regulatory review.
|
If our
products fail to receive marketing approval or lose previously received
approvals, our financial results would be adversely affected.
One
or more competitors developing an opioid antagonist may reach the market ahead
of us and adversely affect the market potential for RELISTOR.
We are
aware that Adolor Corporation, in collaboration with Glaxo Group Limited, or
Glaxo, a subsidiary of GlaxoSmithKline plc, is developing Entereg™ (alvimopan),
an opioid antagonist, for postoperative ileus, which has completed phase 3
clinical trials, and for opioid-induced bowel dysfunction, which has been the
subject of phase 3 clinical trials. Adolor has received an approvable letter
from the FDA for Entereg regarding the treatment of post-operative ileus. If
Entereg reaches the market before RELISTOR in one or more formulations for
particular indications or settings, it could achieve a significant competitive
advantage relative to our product. In any event, the considerable marketing and
sales capabilities of Glaxo may impair our ability to penetrate the
market.
Under the
terms of our collaboration with Wyeth with respect to RELISTOR, Wyeth is
developing the oral formulation of RELISTOR worldwide. We are leading the U.S.
development of the subcutaneous and intravenous formulations of RELISTOR, while
Wyeth is leading development of these parenteral products outside the U.S.
Decisions regarding the timelines for development of the three RELISTOR
formulations are being be made by a Joint Development Committee, and endorsed by
the Joint Steering Committee, each committee formed under the terms of the
license and co-development agreement, consisting of members from both Wyeth and
Progenics.
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 entered into an agreement under which we
depend on Wyeth for the commercialization and development of RELISTOR. We may
not be able to maintain any of 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.
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 March
31, 2008, our stock price has ranged from $4.33 to $30.83 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. 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 relationship with Wyeth 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 recently announced $15 million
share repurchase program may, depending on their timing, volume and form, may
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 March
31, 2008, our directors and executive officers and stockholders affiliated with
Tudor Investment Corporation together beneficially own or control approximately
one-fourth 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 one-third 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.
31.1
|
Certification
of Paul J. Maddon, M.D., Ph.D., Chief Executive Officer of the Registrant,
pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities
Exchange Act of 1934, as amended
|
31.2
|
Certification
of Robert A. McKinney, Chief Financial Officer and Senior Vice President,
Finance and Operations (Principal Financial and Accounting Officer) of the
Registrant, pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
PROGENICS
PHARMACEUTICALS, INC.
|
Date:
May 9, 2008
|
By:
|
/s/
Robert A.
McKinney
|
|
|
Robert
A. McKinney
Chief
Financial Officer
Senior
Vice President, Finance & Operations and Treasurer
(Duly
authorized officer of the Registrant and Principal Financial and
Accounting Officer)
|