Our principal stockholders are able to exert significant influence over matters submitted to stockholders for approval.
Anti-takeover provisions may make removal of our Board and/or management more difficult, discouraging hostile bids for control that may be beneficial to our stockholders.
Our Board is authorized, without further stockholder action, to issue from time to time shares of preferred stock in one or more designated series or classes. The issuance of preferred stock, as well as provisions in some outstanding stock options that provide for acceleration of exercisability upon a change of control, and Section 203 and other provisions of the Delaware General Corporation Law could make a takeover or the removal of our Board or management more difficult; discourage hostile bids for control in which stockholders may receive a premium for their shares; and otherwise dilute the rights of common stockholders and depress the market price of our stock.
Item 1B. Unresolved Staff Comments
There were no unresolved SEC staff comments regarding our periodic or current reports under the Exchange Act as of December 31, 2014.
At December 31, 2014, we occupied approximately 72,900 square feet of laboratory and office space in Tarrytown, New York, pursuant to lease agreements expiring in December 2020 under which we pay rent and facilities charges including utilities, taxes and operating expenses. We believe our existing facilities are adequate to meet our present requirements.
Item 3. Legal Proceedings
Progenics is a party to a proceeding brought by a former employee on November 2, 2010 in the U.S. District Court for the Southern District of New York, complaining that the Company violated the anti-retaliation provisions of the federal Sarbanes-Oxley law by terminating the former employee. The former employee seeks reinstatement of his employment, compensatory damages and certain costs and fees associated with the litigation. The Company believes the former employee's claims are without merit and is contesting the matter vigorously. The federal District Court hearing the case issued in July 2013 an order denying our motion for summary judgment dismissing the former employee's complaint, making it likely that the proceeding will continue to trial. Given the uncertainty attendant to the proceeding, we have accrued amounts in connection with this matter which are not material to these Consolidated Financial Statements.
In the third quarter of 2014, Progenics and Ono, its former licensee of Relistor in Japan, settled all claims between them relating to an arbitration commenced by Progenics in 2013, the parties' October 2008 License Agreement, and the former licensee's development and commercialization of the drug. In connection therewith, the parties terminated the License Agreement, exchanged mutual releases, and the former licensee paid Progenics $7.25 million, which has been recorded as other operating income.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock
Our common stock is quoted on The NASDAQ Stock Market LLC under the symbol PGNX. The following table sets forth, for the periods indicated, the high and low sales price per share of the common stock, as reported on NASDAQ.
| | | | High | | | Low | |
| 2014: | Fourth quarter | | $ | 7.62 | | | $ | 4.26 | |
| | Third quarter | | | 5.72 | | | | 4.02 | |
| | Second quarter | | | 4.65 | | | | 3.10 | |
| | First quarter | | | 7.45 | | | | 3.75 | |
| | | | | | | | | | |
| 2013: | Fourth quarter | | $ | 5.90 | | | $ | 3.45 | |
| | Third quarter | | | 6.47 | | | | 4.36 | |
| | Second quarter | | | 5.57 | | | | 3.54 | |
| | First quarter | | | 5.96 | | | | 2.53 | |
On March 10, 2015, the last sale price for our common stock, as reported by The NASDAQ Stock Market LLC, was $6.66. There were approximately 70 holders of record of our common stock as of that date.
Comparative Stock Performance Graph
The graph below compares, for the past five years, the cumulative stockholder return on our common stock with the cumulative stockholder return of (i) the NASDAQ U.S. Benchmark (TR) Index and (ii) the ICB: 4577 Pharmaceuticals (Subsector) Index, assuming an investment in each of $100 on December 31, 2009.
Dividends
Progenics has never paid any dividends, and we currently anticipate that all earnings, if any, will be retained for development of our business and no dividends will be declared in the foreseeable future.
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 are derived from our audited financial statements, included elsewhere herein. The selected financial data presented below with respect to the balance sheet data as of December 31, 2012, 2011 and 2010 and for each of the two years in the period ended December 31, 2011 are derived from our audited financial statements not included herein. The data set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and related Notes included elsewhere herein.
| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| | (in thousands, except per share data) | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
Collaboration revenue | | $ | 41,196 | | | $ | 1,595 | | | $ | 8,525 | | | $ | 76,764 | | | $ | 1,413 | |
Royalty income | | | 3,101 | | | | 5,923 | | | | 4,963 | | | | 3,046 | | | | 1,826 | |
Research grants | | | - | | | | 275 | | | | 488 | | | | 4,810 | | | | 4,573 | |
Other revenues | | | 80 | | | | 69 | | | | 72 | | | | 176 | | | | 140 | |
Total revenues | | | 44,377 | | | | 7,862 | | | | 14,048 | | | | 84,796 | | | | 7,952 | |
Expenses: | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 27,737 | | | | 33,391 | | | | 31,332 | | | | 52,555 | | | | 50,151 | |
License fees - research and development | | | 498 | | | | 567 | | | | 1,170 | | | | 578 | | | | 1,270 | |
Royalty expense | | | 357 | | | | 624 | | | | 499 | | | | 405 | | | | 241 | |
General and administrative | | | 14,944 | | | | 14,602 | | | | 15,214 | | | | 18,876 | | | | 23,321 | |
Depreciation and amortization | | | 545 | | | | 939 | | | | 1,324 | | | | 2,066 | | | | 2,853 | |
Intangible impairment charges | | | 2,676 | | | | 919 | | | | - | | | | - | | | | - | |
Change in contingent consideration liability | | | 1,500 | | | | (200 | ) | | | - | | | | - | | | | - | |
Total expenses | | | 48,257 | | | | 50,842 | | | | 49,539 | | | | 74,480 | | | | 77,836 | |
Other operating income | | | 7,250 | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 3,370 | | | | (42,980 | ) | | | (35,491 | ) | | | 10,316 | | | | (69,884 | ) |
Other income: | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 51 | | | | 46 | | | | 60 | | | | 65 | | | | 64 | |
Total other income | | | 51 | | | | 46 | | | | 60 | | | | 65 | | | | 64 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) before provision for income taxes | | | 3,421 | | | | (42,934 | ) | | | (35,431 | ) | | | 10,381 | | | | (69,820 | ) |
Income tax benefit | | | 989 | | | | 362 | | | | - | | | | - | | | | 95 | |
Net income (loss) | | $ | 4,410 | | | $ | (42,572 | ) | | $ | (35,431 | ) | | $ | 10,381 | | | $ | (69,725 | ) |
Per share amounts on net income (loss): | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.06 | | | $ | (0.76 | ) | | $ | (1.02 | ) | | $ | 0.31 | | | $ | (2.14 | ) |
Diluted | | $ | 0.06 | | | $ | (0.76 | ) | | $ | (1.02 | ) | | $ | 0.31 | | | $ | (2.14 | ) |
| | December 31, | |
| | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| | (in thousands) | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 119,302 | | | $ | 65,860 | | | $ | 58,838 | | | $ | 70,105 | | | $ | 47,918 | |
Auction rate securities | | | - | | | | 2,208 | | | | 3,240 | | | | 3,332 | | | | 3,608 | |
Working capital | | | 115,241 | | | | 64,055 | | | | 58,805 | | | | 65,890 | | | | 42,207 | |
Total assets | | | 161,037 | | | | 114,541 | | | | 76,308 | | | | 80,110 | | | | 62,738 | |
Deferred revenue - current | | | - | | | | - | | | | 838 | | | | 204 | | | | - | |
Deferred revenue - long term | | | - | | | | - | | | | - | | | | 162 | | | | - | |
Other liabilities - long term | | | 29,443 | | | | 28,935 | | | | 1,078 | | | | 1,497 | | | | 1,635 | |
Total stockholders' equity | | | 124,909 | | | | 78,979 | | | | 66,568 | | | | 71,801 | | | | 51,308 | |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
Overview
General. As discussed in Business, above, we have completed phase 2 clinical trials of two product candidates for prostate cancer, and resumed a pivotal phase 2 trial of an ultra-orphan radiotherapy candidate for pheochromocytoma. We are moving forward with MIP-1095, a compound originally developed by Molecular Insight, into clinical development, and expect to file an IND application in the U.S. this year.
Our 2013 acquisition of the privately-held Molecular Insight included the issuance of Progenics common stock in a private transaction not taxable to Progenics, and Progenics' agreement to pay potential milestones, in cash or Progenics stock at its option, of up to $23 million, contingent upon achieving specified commercialization events and up to $70 million contingent upon achieving specified sales targets relating to the acquired company's products. The acquisition was accounted for using the acquisition method of accounting, under which the acquired company's assets and liabilities were recorded at their estimated respective fair values as of the acquisition date in our consolidated financial statements. The difference between the estimated fair value of the acquisition consideration and fair value of the identifiable net assets represents potential future economic benefits arising from combining the companies, and has been recorded as goodwill. The results of operations of the acquired company's business from January 18, 2013, the closing date of the acquisition, the estimated fair market values of the assets acquired and liabilities assumed, and goodwill are included in our consolidated financial statements since the date of the acquisition and are included in the discussion and analysis below.
We have licensed Relistor to Salix Pharmaceuticals, and have partnered other internally-developed or acquired compounds and technologies with third parties. We continue to consider opportunities for strategic collaborations, out-licenses and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and may in the future also in-license or acquire additional oncology compounds and/or programs.
Our current principal sources of revenue from operations are royalty, commercialization milestone and revenue-sharing payments from Salix's Relistor operations. Royalty and milestone payments from Relistor depend on success in development and commercialization, which is dependent on many factors, such as Salix's efforts, decisions by the FDA and other regulatory bodies, competition from drugs for the same or similar indications, and the outcome of clinical and other testing of Relistor. In the third quarter of 2014, Progenics and Ono, its former licensee of Relistor in Japan, settled all claims between them relating to an arbitration commenced by Progenics in 2013, the parties' October 2008 License Agreement, and the former licensee's development and commercialization of the drug. In connection therewith, the parties exchanged mutual releases and the former licensee paid Progenics $7.25 million, which has been recorded as other operating income.
We fund our operations to a significant extent from capital-raising. During 2013, we completed an underwritten public offering of 9.8 million shares of common stock at a public offering price of $4.40 per share, resulting in net proceeds of approximately $40.1 million, and in early 2014 sold an additional 8.75 million shares at $4.60 per share, for net proceeds of approximately $37.5 million.
Most of our expenditures are for research and development activities. During 2014, expenses for Oncology, primarily related to PSMA ADC, 1404, AZEDRA™ and 1095, were $27.3 million compared to $32.9 million in 2013 and $28.6 million in 2012. Expenses for Relistor and other programs in 2014 were $1.3 million, compared to $1.7 million in 2013 and $4.4 million in 2012. We expect to incur operating losses for the foreseeable future. At December 31, 2014, we held $119.3 million in cash and cash equivalents, an increase of $53.4 million from $65.9 million at 2013 year-end. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year.
If we do not realize sufficient royalty or other revenue from Relistor, or are unable to enter into favorable collaboration, license, asset sale, capital raising or other financing transactions, we will have to reduce, delay or eliminate spending on certain programs, and/or take other economic measures.
Relistor has been approved by regulatory authorities in the U.S., countries in the E.U., Canada and Australia and elsewhere since 2008 for treatment of OIC in advanced-illness patients receiving palliative care when laxative therapy has not been sufficient and in the U.S. since 2014 for the treatment of OIC in patients with non-cancer pain. Salix is responsible for further developing and commercializing Relistor, including completing clinical development necessary to support regulatory marketing approvals for potential new indications and formulations of the drug, such as oral methylnaltrexone. Under our Agreement with Salix, we received a development milestone of $40 million upon U.S. marketing approval for subcutaneous Relistor in non-cancer pain patients and are eligible to receive (i) a development milestone of up to $50 million upon U.S. marketing approval of an oral formulation of Relistor, (ii) up to $200 million of commercialization milestone payments upon achievement of specified U.S. sales targets, (iii) royalties ranging from 15 to 19 percent of net sales by Salix and its affiliates, and (iv) 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Salix receives from sublicensees outside the U.S. In the event marketing approval of the oral formulations of the drug is subject to a Black Box Warning or REMS, payment of a substantial portion of the milestone amount would be deferred, and subject, to achievement of the first commercialization milestone (payable on annual U.S. sales first exceeding $100 million).
Salix has secured distribution for Relistor in the European territory, licensed Link Medical Products Pty Limited for distribution in Australia, New Zealand, South Africa and certain other markets in Asia, and in the third quarter entered into an agreement with Lupin Limited for distribution of Relistor in Canada.
Results of Operations (amounts in thousands unless otherwise noted)
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | |
Revenues | | $ | 44,377 | | | $ | 7,862 | | | $ | 14,048 | | | | 464 | % | | | (44 | %) |
Expenses | | | (48,257 | ) | | | (50,842 | ) | | | (49,539 | ) | | | (5 | %) | | | 3 | % |
Other operating income | | | 7,250 | | | | - | | | | - | | | | 100 | % | | | N/ | A |
Operating income (loss) | | | 3,370 | | | | (42,980 | ) | | | (35,491 | ) | | | (108 | %) | | | 21 | % |
Other income | | | 51 | | | | 46 | | | | 60 | | | | 11 | % | | | (23 | %) |
Income tax benefit | | | 989 | | | | 362 | | | | - | | | | 173 | % | | | 100 | % |
Net income (loss) | | $ | 4,410 | | | $ | (42,572 | ) | | $ | (35,431 | ) | | | (110 | %) | | | 20 | % |
Revenues (amounts in thousands unless otherwise noted):
Sources of revenue during the years indicated below included license and other agreements with Salix and other collaborators, and to a small extent research grants from the National Institutes of Health (NIH) and sales of research reagents.
Sources of Revenue | | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | |
Collaboration revenue | | $ | 41,196 | | | $ | 1,595 | | | $ | 8,525 | | | | 2,483 | % | | | (81 | %) |
Royalty income | | | 3,101 | | | | 5,923 | | | | 4,963 | | | | (48 | %) | | | 19 | % |
Research grants | | | - | | | | 275 | | | | 488 | | | | (100 | %) | | | (44 | %) |
Other revenues | | | 80 | | | | 69 | | | | 72 | | | | 16 | % | | | (4 | %) |
Total | | $ | 44,377 | | | $ | 7,862 | | | $ | 14,048 | | | | 464 | % | | | (44 | %) |
Collaboration revenue. During 2014, we recognized revenue from milestone partnering arrangements, primarily resulting from the $40,000 milestone from Salix, for the approval of subcutaneous Relistor for treatment of OIC in non-cancer pain patients and $157 in reimbursement payments, and a $1,000 milestone payment from FUJIFILM RI Pharma in the first quarter of 2014 and $37 in reimbursement payments.
During 2013, we recognized revenue from upfront and reimbursement payments from partnering arrangements consisting of (i) $676 from amortization of upfront payments for partnering the Company's PRO 140 and C. difficile programs, (ii) $420 from amortization of upfront payment and expense reimbursement for licensing 1404 in Japan, (iii) $295 from amortization of upfront payment and expense reimbursement for licensing Relistor, and (iv) a $189 upfront payment from another licensee.
During 2012, we recognized revenue from upfront and reimbursement payments from partnering arrangements consisting of (i) $7,949 from PRO 140 and C. difficile partnering, and (ii) $558 from Salix. As of December 31, 2012, $838 is recorded in deferred revenue – current.
During 2014, 2013 and 2012, we recognized $2, $15 and $18, respectively, of reimbursement revenue for activities requested by former collaborators.
Royalty income. During the periods presented below we recognized royalty income primarily based on the below net sales of Relistor reported by Salix.
| | Relistor Net Sales | |
| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
U.S. | | $ | 16,200 | | | $ | 35,000 | | | $ | 29,200 | |
Ex-U.S. | | | 4,100 | | | | 4,400 | | | | 4,000 | |
Global | | $ | 20,300 | | | $ | 39,400 | | | $ | 33,200 | |
Salix reported sales deductions in excess of gross sales resulting in royalty loss from net Relistor losses during the fourth quarter of 2014, leading us to recognize an accrued royalty loss liability owed to Salix of $0.7 million.
Research grants. During the last three years, we recognized $0, $275 and $488, respectively, as revenue from federal government grants from the NIH to support research and development programs. Decreases in grant revenue primarily resulted from lower reimbursable expenses year-to-year. We do not expect to recognize revenues from the NIH in the foreseeable future.
Other revenues, primarily from orders for research reagents, changed as shown in the Sources of Revenue table above.
Expenses (amounts in thousands unless otherwise noted):
Research and Development Expenses include scientific labor, clinical trial costs, supplies, product manufacturing costs, consulting, license fees, royalty payments and other operating expenses. Research and development expenses decreased to $28,592 for 2014 from $34,582 for 2013 and from $33,001 for 2012. See Liquidity and Capital Resources – Uses of Cash, for details of the changes in these expenses by project. Portions of our expenses during 2013 and 2012 were funded through grants from the NIH (see Revenues- Research Grants). The changes in research and development expense, by category of expense, are as follows:
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Salaries and benefits | | $ | 9,003 | | | $ | 12,481 | | | $ | 15,372 | | | | (28 | %) | | | (19 | %) |
2014 vs. 2013 Salaries and benefits decreased primarily due to a decline in average headcount, and reflecting approximately $1.5 million restructuring charges recorded in 2013.
2013 vs. 2012 Salaries and benefits decreased primarily due to a decline in average headcount, and reflecting a non-recurring retirement expense of $1,804 incurred in the first quarter of 2012.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Share-based compensation | | $ | 1,843 | | | $ | 2,012 | | | $ | 4,060 | | | | (8 | %) | | | (50 | %) |
2014 vs. 2013 Share-based compensation decreased primarily due to lower stock expenses and the previous discontinuation of new restricted stock awards.
2013 vs. 2012 Share-based compensation decreased primarily due to lower equity incentives expenses, and reflecting non-recurring 2012 retirement-related option and restricted stock expense of $1,638.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Clinical trial costs | | $ | 6,510 | | | $ | 8,862 | | | $ | 2,692 | | | | (27 | %) | | | 229 | % |
2014 vs. 2013 Clinical trial costs decreased primarily due to lower expenses for Oncology ($2,337), primarily related to 1404 and PSMA ADC, partially offset by higher expenses for Azedra.
2013 vs. 2012 Clinical trial costs increased primarily due to higher expenses for Oncology ($6,214), primarily related to 1404 and PSMA ADC, partially offset by lower expenses for Relistor and other programs ($44).
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
Laboratory and manufacturing supplies and | | | | | | | | | | | Percent change | |
equipment | | $ | 193 | | | $ | 632 | | | $ | 592 | | | | (69 | %) | | | 7 | % |
2014 vs. 2013 Laboratory and manufacturing supplies and equipment decreased due to lower expenses for Relistor and other programs ($327) and Oncology ($112).
2013 vs. 2012 Laboratory and manufacturing supplies and equipment increased by $511 for other programs, including second quarter impairment losses from the write-off of laboratory equipment in connection with an amendment to the Company's Tarrytown lease, partially offset by lower Oncology expenses ($471), primarily from a decline in lab supplies for PSMA ADC.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
Contract manufacturing and | | | | | | | | | | | Percent change | |
subcontractors | | $ | 5,191 | | | $ | 2,042 | | | $ | 3,111 | | | | 154 | % | | | (34 | %) |
2014 vs. 2013 Contract manufacturing and subcontractors increased due to higher expenses for Oncology ($3,163), primarily related to Azedra, 1404 and PSMA ADC, partially offset by lower expenses for Relistor and other programs.
2013 vs. 2012 Contract manufacturing and subcontractors decreased, primarily due to lower expenses for Oncology ($571) and Relistor and other programs ($498).
Expenses in this category relate 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.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Consultants | | $ | 887 | | | $ | 905 | | | $ | 330 | | | | (2 | %) | | | 174 | % |
2014 vs. 2013 Consultants expense decreased primarily due to lower expenses for Oncology ($66), partially offset by higher expenses for Relistor and other programs ($48).
2013 vs. 2012 Consultants expense increased primarily due to higher expenses for Oncology ($613), partially offset by lower expenses for Relistor and other programs ($38).
Expenses in this category relate to monitoring ongoing clinical trials and reviewing data from completed trials including the preparation of filings and vary as the timing and level of such services are required.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
License fees | | $ | 498 | | | $ | 567 | | | $ | 1,170 | | | | (12 | %) | | | (52 | %) |
2014 vs. 2013 License fees decreased primarily due to lower expenses for Oncology, partially offset by a license payment related to the $40,000 subcutaneous Relistor for non-cancer pain milestone.
2013 vs. 2012 License fees decreased due to lower expenses for Oncology ($573) and Relistor and other programs ($30).
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Royalty expense | | $ | 357 | | | $ | 624 | | | $ | 499 | | | | (43 | %) | | | 25 | % |
2014 vs. 2013 The decrease in royalty expense was primarily due to lower net sales of Relistor in 2014.
2013 vs. 2012 The increase in royalty expense was primarily due to higher net sales of Relistor in 2013.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Other operating expenses | | $ | 4,110 | | | $ | 6,457 | | | $ | 5,175 | | | | (36 | %) | | | 25 | % |
2014 vs. 2013 Other operating expenses decreased from 2013 primarily due to lower expenses for rent ($1,837), other operating expenses ($292), facilities ($164), insurance ($27) and travel ($27).
2013 vs. 2012 Other operating expenses increased from 2012 primarily due to increases in rent ($1,131), as a result of lease amendment and termination expenses, travel ($106), other operating expenses ($140) and insurance ($57), partially offset by a decrease in facilities ($152).
General and Administrative Expenses increased to $14,944 for 2014 from $14,602 for 2013 and decreased from $15,214 for 2012, as follows:
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Salaries and benefits | | $ | 4,398 | | | $ | 4,821 | | | $ | 6,493 | | | | (9 | %) | | | (26 | %) |
2014 vs. 2013 Salaries and benefits decreased primarily due to a decline in average headcount.
2013 vs. 2012 Salaries and benefits decreased primarily due to 2012 accrued severance expense resulting from headcount reductions, while the average headcount remained unchanged.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Share-based compensation | | $ | 1,680 | | | $ | 1,534 | | | $ | 2,476 | | | | 10 | % | | | (38 | %) |
2014 vs. 2013 Share-based compensation increased primarily due to higher stock option expenses.
2013 vs. 2012 Share-based compensation decreased primarily due to lower equity incentives expenses, which included restructuring expenses in 2012.
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Consulting and professional fees | | $ | 5,060 | | | $ | 3,922 | | | $ | 2,362 | | | | 29 | % | | | 66 | % |
2014 vs. 2013 Consulting and professional fees increased due to higher legal expenses ($1,873) and other fees ($93), partially offset by lower consulting ($539), legal patent ($227) and audit and compliance expenses ($62).
2013 vs. 2012 Consulting and professional fees increased due to higher consulting ($697), patent ($457), legal ($256), audit ($101) and other fees ($49).
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Other operating expenses | | $ | 3,806 | | | $ | 4,325 | | | $ | 3,883 | | | | (12 | %) | | | 11 | % |
2014 vs. 2013 Other operating expenses decreased due to lower expenses for computer software ($120), recruiting ($102), rent ($58), taxes ($30), travel ($17) and other operating expenses ($192).
2013 vs. 2012 Other operating expenses increased due to higher expenses for market research ($158), recruiting ($112), investor relations ($109) and taxes ($108) and other operating expenses ($127), partially offset by a decrease in rent ($172).
Depreciation and Amortization Expenses decreased from 2013 to 2014 and from 2012 to 2013, as follows:
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Depreciation and amortization | | $ | 545 | | | $ | 939 | | | $ | 1,324 | | | | (42 | %) | | | (29 | %) |
2014 vs. 2013 Depreciation and amortization expense decreased primarily due to lower machinery and equipment fixed asset balances.
2013 vs. 2012 Depreciation and amortization expense decreased primarily due to lower leasehold improvements and machinery and equipment fixed asset balances.
Intangible Impairment Charges increased from 2013 to 2014 and from 2012 to 2013, as follows:
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Intangible impairment charges (non-cash) | | $ | 2,676 | | | $ | 919 | | | $ | - | | | | 191 | % | | | 100 | % |
2014 vs. 2013 As of December 31, 2014 indefinite-lived intangible assets decreased by $2,679, from $31,379 million to $28,700 million, of which a $2,660 impairment of the indefinite-lived Onalta and MIP-1095 assets and a $16 impairment of the finite-lived Onalta asset balance were incurred due to our review of these intangible assets, with the corresponding impairment charges recorded in the Consolidated Statements of Operations.
2013 vs. 2012 As of December 31, 2013 indefinite-lived intangible assets decreased by $919, from $32,298 million to $31,379 million, resulting from our annual impairment testing, with the corresponding impairment charges recorded in the Consolidated Statements of Operations. This impairment was the result of change in the estimated timing of beginning cash inflows from 2014 to 2018 and an increase in discount rate from 15% to 18% for the Onalta intangible asset.
Change in Contingent Consideration Liability increased from 2013 to 2014 and decreased from 2012 to 2013, as follows:
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Change in contingent consideration liability (non-cash) | | $ | 1,500 | | | $ | (200 | ) | | $ | - | | | | (850 | %) | | | (100 | %) |
2014 vs. 2013 The review of the contingent consideration liability fair value resulted in $1,500 increase, from $15,700 to $17,200, which has been recorded as non-cash expense in the Consolidated Statements of Operations. The increase in contingent consideration liability was primarily due to higher probability of success for 1404, partially offset by decrease due to lower projected revenues for MIP-1095.
2013 vs. 2012 The fourth quarter of 2013 review of the contingent consideration liability fair value resulted in a $200 decrease, from $15,900 to $15,700, which has been recorded as non-cash expense in the Consolidated Statements of Operations. The decrease in contingent consideration liability was primarily due to an increase in the discount period.
Significant changes in estimates and assumptions underlying the estimated fair value of the contingent consideration liability would result in a significantly higher or lower fair value with a corresponding non-cash charge or credit to expenses.
Other operating income (amounts in thousands unless otherwise noted):
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Other operating income | | $ | 7,250 | | | $ | - | | | $ | - | | | | 100 | % | | | N/ | A |
2014 Other operating income consists of a third quarter 2014 payment received in connection with settlement of arbitration with our former licensee for Relistor in Japan.
Other income (amounts in thousands unless otherwise noted):
| | 2014 | | | 2013 | | | 2012 | | | 2014 vs. 2013 | | | 2013 vs. 2012 | |
| | | | | | | | | | | Percent change | |
Interest income | | $ | 51 | | | $ | 46 | | | $ | 60 | | | | 11 | % | | | (23 | %) |
2014 vs. 2013 Interest income increased primarily due to higher average balances in 2014 than in 2013, partially offset by decreases due to lower average interest rates in 2014 than in 2013.
2013 vs. 2012 Interest income decreased primarily due to lower average interest rates in 2013 than in 2012, partially offset by increases resulting from higher average balances of cash equivalents.
Interest income, as reported, is primarily the result of investment income from auction rate securities.
Income Taxes (amounts in thousands unless otherwise noted):
For the year ended December 31, 2014, our book income was $4,410, resulting primarily from $40,000 in milestone revenue from Salix and a $7,250 payment received in the settlement of arbitration with our former licensee for Relistor in Japan, however there was no provision for income taxes for 2014, due to taxable losses resulting primarily from the utilization of a portion of our deferred tax assets. For 2014 and 2013, income tax benefit of $989 and $362, respectively, resulted from the change in the difference between carrying amounts of in-process research and development assets for financial reporting purposes and the amounts used for income tax purposes. For 2012 there was no provision for income taxes due to pre-tax loss.
Net Income (Loss) (amounts in thousands unless otherwise noted):
Our 2014 net income was $4,410, compared to net losses of $42,572 for 2013 and $35,431 for 2012.
Liquidity and Capital Resources (amounts in thousands unless otherwise noted):
We have to date funded operations principally through proceeds received from private placements of equity securities, public offerings of common stock, collaborations, grants and contracts, royalties, interest on investments, and proceeds from the exercise of outstanding options and warrants.
In 2014, we have received a $40,000 milestone payment from Salix, for the approval of subcutaneous Relistor for non-cancer pain patients, a $1,000 milestone payment from our Japanese partner in the 1404 program and a $7,250 payment upon settlement of arbitration with our former licensee for Relistor in Japan.
In 2013 and 2012, we received a $5,000 upfront payment from partnering of the C. difficile program and a $3,500 payment upon sale of our PRO 140 program, respectively. We are eligible to receive future milestone and royalty payments. The 2013 receipt resulted in the reversal in 2013 of deferred tax assets and liabilities established in 2012 to reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
At December 31, 2014, we held $119,302 in cash and cash equivalents, an increase of $53,442 from $65,860 at December 31, 2013. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year. In addition, at December 31, 2013, our investment in auction rate securities classified as long-term assets on the Consolidated Balance Sheets amounted to $2,208, which were redeemed at par in the fourth quarter of 2014.
If we do not realize sufficient royalty or other revenue from Relistor or other collaboration, license, asset sale, capital raising or other financing transactions, we will have to reduce, delay or eliminate spending on certain programs, and/or take other economic measures.
Cash provided by operating activities was $13,726 for 2014, due to the receipt of a $40,000 Salix milestone payment, partially offset by expenditures on our research and development programs and general and administrative costs. Cash used in operating activities for 2013 and 2012 was $36,107 and $34,644, respectively, due to excess of expenditures on our research and development programs and general and administrative costs over cash received from collaborators and government grants. See Risk Factors.
During the first quarter of 2014, we established a $150 million replacement shelf registration statement which we used for our February 2014 underwritten public offering of 8.75 million shares of common stock at a public offering price of $4.60 per share, resulting in net proceeds of approximately $37,459. We may utilize this shelf registration for the issuance of up to approximately $110,000 of additional common stock and other securities, including up to $50,000 of our common stock under an agreement with an investment bank providing for at-the-market sales through the bank. In 2013, we completed an underwritten public offering under our 2011 shelf registration statement of 9.8 million shares of common stock at a public offering price of $4.40 per share (including the underwriters' overallotment option), resulting in net proceeds of approximately $40,078. In December 2012, we completed a public offering of 12.7 million shares of common stock for net proceeds of approximately $23,348.
Sources of Cash (amounts in thousands unless otherwise noted)
Operating Activities. In addition to the settlement payment received from Ono mentioned above, during 2014 we received $47,773 under our collaborations, consisting of (i) $40,000 milestone payment from Salix for the chronic non-cancer pain indication, (ii) $6,691 in royalties and reimbursements from Salix, (iii) $1,000 in milestone payment and $37 in reimbursement payments relating to 1404 and (iv) $45 from out-licenses of other assets. During 2013 we received $9,686 under our collaborations, consisting of (i) $5,125 in upfront and reimbursement payments from partnering of the C. difficile program, (ii) $3,952 in royalties and reimbursements from Salix, (iii) payments totaling $224 from out-licenses of other assets, and (iv) $385 in reimbursement payments relating to 1404. During 2012 we received $9,393 under collaborations, out-licenses and sale of assets, consisting of (i) $404 in reimbursement payments under the Salix License Agreement, (ii) $5,461 in royalties from Salix, (iii) $3,500 from the sale of our PRO 140 program and (iv) $28 under another out-license.
We have in the past partially funded research programs through awards from the NIH, which we do not expect to receive in the foreseeable future. For 2013 and 2012, we received $287 and $576, respectively, of revenue from all of our NIH awards.
Changes in Accounts receivable and Accounts payable for 2014, 2013 and 2012 resulted from the timing of receipts from Salix, Fuji, other partnering transactions, and, principally in prior periods, NIH and Ono, and the timing of payments made to trade vendors in the normal course of business.
We have no committed external sources of funding or capital other than agreements under which collaborators and licensees have contractual obligations to make payments to us. Other than revenues from Relistor, we expect no significant product revenues in the immediate or near-term future, as it will take significant time to bring any of our current product candidates to the commercial marketing stage.
Investing Activities. Approximately 95% of our $119,302 in cash and cash equivalents at December 31, 2014 was invested in money market funds.
Financing Activities. During 2014, net cash provided by financing activities included $37,459 in net proceeds from the issuance of 8,750 shares of common stock. In addition, during 2014, 2013 and 2012, we received cash of $428, $71 and $306, respectively, from exercise of stock options and sales of common stock in satisfaction of severance obligations (in 2012). The amount of cash we receive from these sources fluctuates commensurate with changes in the common stock price on and after the grant date.
Unless we obtain regulatory approval for additional product candidates and/or enter into agreements with corporate collaborators with respect to other proprietary assets, we will be required to fund our operations through sales of common stock or other securities or royalty or other financing agreements. 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 may seriously jeopardize the future success of our business.
Uses of Cash (amounts in thousands unless otherwise noted)
Operating Activities. The majority of our cash has been used to advance our research and development programs, including conducting pre-clinical studies and clinical trials, pursuing regulatory approvals for product candidates, filing and prosecuting patent applications and defending patent claims. Included in the 2012 period presented below is $2,073 of cash disbursements incurred in connection with a former senior executive first quarter retirement. For various reasons, including the early stage of certain of our programs, the timing and results of our clinical trials, our dependence in certain instances on third parties, many of which are outside of our control, we cannot estimate the total remaining costs to be incurred and timing to complete all our research and development programs.
Research and development costs incurred by project over the past three years were as follows:
| | 2014 | | | 2013 | | | 2012 |
| | (in millions) |
Oncology | | $ | 27.3 | | | $ | 32.9 | | | $ | 28.6 |
Relistor and other programs | | | 1.3 | | | | 1.7 | | | | 4.4 |
Total | | $ | 28.6 | | | $ | 34.6 | | | $ | 33.0 |
We will require additional funding to continue our research and product development programs, conduct pre-clinical studies and clinical trials, pursue regulatory approvals for our product candidates, file and prosecute patent applications and enforce or defend patent claims, if any, fund other operating expenses, and fund product in-licensing and any possible acquisitions.
Investing Activities. During the past three years, we have spent $714, $137 and $767, respectively, on capital expenditures.
Contractual Obligations
Our funding requirements, both for the next 12 months and beyond, will include required payments under operating leases and fixed and contingent payments under licensing, collaboration and other agreements. The following table summarizes our contractual obligations as of December 31, 2014 for future payments under these agreements:
| | | | | Payments due by Period |
| | Total | | | Less than one year | | | 1 to 3 years | | | 3 to 5 years | | | Greater than 5 years |
| | (in millions) |
Operating leases | | $ | 12.1 | | | $ | 1.9 | | | $ | 3.9 | | | $ | 4.1 | | | $ | 2.2 |
License, collaboration and other agreements: | | | | | | | | | | | | | | | | | | | |
Fixed payments | | | 1.0 | | | | 0.3 | | | | 0.4 | | | | 0.3 | | | | - |
Contingent payments (1) | | | 104.6 | | | | - | | | | 2.3 | | | | 16.9 | | | | 85.4 |
Total | | $ | 117.7 | | | $ | 2.2 | | | $ | 6.6 | | | $ | 21.3 | | | $ | 87.6 |
______________
(1) | Based on assumed achievement of milestones covered under each agreement, the timing and payment of which is highly uncertain. |
We periodically assess the scientific progress and merits of each of our programs to determine if continued research and development is commercially and economically viable. Certain of our programs have been terminated due to the lack of scientific progress and prospects for ultimate commercialization. Because of the uncertainties associated with research and development in these programs, the duration and completion costs of our research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete research and development projects in a timely manner or failure to enter into collaborative agreements could significantly increase capital requirements and adversely affect our liquidity.
Our cash requirements may vary materially from those now planned because of results of research and development and product testing, changes in existing relationships or new relationships with licensees, licensors or other collaborators, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing patent claims, the regulatory approval process, manufacturing and marketing and other costs associated with the commercialization of products following receipt of regulatory approvals and other factors.
The above discussion contains forward-looking statements based on our current operating plan and the assumptions on which it relies. There could be deviations from that plan that would consume our assets earlier than planned.
Off-Balance Sheet Arrangements and Guarantees
We have no obligations under off-balance sheet arrangements and do not guarantee the obligations of any other unconsolidated entity.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. Our significant accounting policies are disclosed in Note 2 to our financial statements included in this Report. The selection and application of these accounting principles and methods requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. We evaluate these estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities that are not otherwise readily apparent. While we believe that the estimates and assumptions we use in preparing the financial statements are appropriate, they are subject to a number of factors and uncertainties regarding their ultimate outcome and, therefore, actual results could differ from these estimates.
The critical accounting policies we use and the estimates we make are described below. These are policies and estimates that we believe are the most important in portraying our financial condition and results of operations, and that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.
Revenue Recognition. We recognize revenue from all sources based on the provisions of the SEC's Staff Accounting Bulletin (SAB) No. 104 (SAB 104) and ASC 605 Revenue Recognition.
The FASB's ASC 605 Revenue Recognition specifies how to separate deliverables in multiple-deliverable arrangements, and how to measure and allocate arrangement consideration to one or more units of accounting, and provides that the delivered item(s) are separate units of accounting, if (i) the delivered item(s) have value to a collaborator on a stand-alone basis, and (ii), if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control.
Royalty revenue is recognized based upon net sales of related licensed products, and is recognized in the period the sales (losses) occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no remaining performance obligations under the arrangement providing for the royalty. Royalty loss is recognized based upon reported sales deductions in excess of gross sales resulting in net losses and are recognized in the period net losses occur. Royalty loss is classified in royalty income in the consolidated statements of operations and the related accrued royalty loss liability is classified in accounts payable and accrued expenses in the 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 classification of deferred revenue as short-term or long-term is based upon the periods in which we expect to perform our collaboration arrangement obligations including non-reimbursable technical assistance.
Share-Based Payment Arrangements. Our share-based compensation of employees includes non-qualified stock options and restricted stock, which are compensatory under ASC 718 Compensation – Stock Compensation. We account for share-based compensation to non-employees, including non-qualified stock options and restricted stock, in accordance with ASC 505 Equity.
The fair value of each non-qualified stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The model requires input assumptions with respect to (i) expected volatility of our common stock, which is based upon the daily quoted market prices on The NASDAQ Stock Market LLC over a period equal to the expected term, (ii) the period of time over which employees, officers, directors and non-employee consultants are expected to hold their options prior to exercise, (iii) expected dividend yield (zero in our case due to never having paid dividends and not expecting to pay dividends in the future), and (iv) risk-free interest rates for periods within the expected term of the options, which are based on the U.S. Treasury yield curve in effect at the time of grant.
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 we believe it is generally viewed as providing the most reliable indication of future volatility. In estimating expected future volatility, we assume it will be consistent with historical; we calculate historical volatility using a simple average calculation; we use available historical data for the length of the option's expected term, and we consistently use a sufficient number of price observations. Since our stock options are not traded on a public market, we do not use implied volatility.
The expected term of options granted represents the period of time that options granted are expected to be outstanding based upon historical data related to exercise and post-termination cancellation activity. The expected term of stock options granted to our Chief Executive Officer (CEO) and non-employee directors, consultants and officers are calculated separately from stock options granted to other employees.
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.
Changes in the assumptions used to compute the fair value of the option awards are likely to affect their fair value and the amount of compensation expense recognized in future periods. A higher volatility, longer expected term and higher risk-free rate increases the resulting compensation expense recognized in future periods as compared to prior periods. Conversely, a lower volatility, shorter expected term and lower risk-free rate decreases such expense recognized in future periods as compared to prior periods.
For performance stock option awards to our CEO (awarded in 2012 and 2011 only), vesting occurs upon achievement of specified performance-based milestones. The awards, which have an exercise price equal to the closing price of our common stock on the date of grant, are valued using the Black-Scholes option pricing model: the expense related to these grants is recognized during the period, if any, in which each performance milestone is achieved.
Clinical Trial and Other Research and Development Expenses. Clinical trial expenses, which are included in research and development expenses, represent obligations resulting from contracts with various clinical investigators and clinical research organizations in connection with conducting clinical trials for our product candidates. Such costs are expensed as incurred, and are generally based on the 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 to provide services. We believe that this method best aligns 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. 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. Such estimates are subject to change as additional information becomes available.
Fair Value Measurements. During the fourth quarter of 2014, all of the $2.2 million (net of $0.2 million unrealized loss) auction rate securities remaining at December 31, 2013 have been redeemed at par. Our available-for-sale investment portfolio consists of money market funds and, prior to the fourth quarter redemption at par, $2.4 million face amount of auction rate securities (ARS), and is recorded at fair value in the accompanying Consolidated Balance Sheets in accordance with ASC 320 Investments – Debt and Equity Securities. The change in the fair value of these investments is recorded as a component of other comprehensive income (loss). We expect to recover the amortized cost of all of our investments at maturity.
In–Process Research and Development and Goodwill. In connection with the acquisition of Molecular Insight, we have established a policy for accounting for intangible assets, under which in process research and development (IPR&D) and goodwill are initially measured at fair value and capitalized as an intangible asset and an impairment test for these intangibles is performed annually in the fourth quarter, unless impairment indicators require an earlier evaluation. Upon and subject to commercialization of these candidates, the IPR&D will be amortized over the relevant estimated useful life.
Contingent Consideration Liability. The estimated fair value of the contingent consideration liability, initially measured and recorded on the acquisition date, is considered to be a Level 3 instrument and is reviewed quarterly, or whenever events or circumstances occur that indicate a change in fair value. The contingent consideration liability is recorded at fair value at the end of each period.
Legal Proceedings. From time to time, we may be a party to legal proceedings in the course of our business. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Company records accruals for contingencies to the extent that the occurrence of the contingency is probable and the amount of liability is reasonably estimable. If the reasonable estimate of liability is within a range of amounts and some amount within the range appears to be a better estimate than any other, then the Company records that amount as an accrual. If no amount within the range is a reasonable estimate, then the Company records the lowest amount as an accrual. Loss contingencies that are assessed as remote are not reported in the financial statements, or in the notes to the consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary investment objective is to preserve principal. Our money market funds have interest rates that were variable and totaled $112.8 million at December 31, 2014. As a result, we do not believe that these investment balances have a material exposure to interest-rate risk.
Item 8. Financial Statements and Supplementary Data
See page F-1, Index to Consolidated Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and Principal Financial Officer (PFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have a Disclosure Committee consisting of members of our senior management which monitors and implements our policy of disclosing material information concerning the Company in accordance with applicable law.
As required by SEC Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our CEO and PFO concluded that our current disclosure controls and procedures, as designed and implemented, were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) during our fiscal quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and PFO and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is responsible for establishing and maintaining adequate internal control over financial reporting which includes policies and procedures that:
· | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets; |
| |
· | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of management and directors; and |
| |
· | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has used the framework set forth in the report entitled Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Management has concluded that our internal control over financial reporting was effective as of December 31, 2014. The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as of December 31, 2014 as stated in their report which is provided below.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Progenics Pharmaceuticals, Inc.
We have audited Progenics Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Progenics Pharmaceuticals, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Progenics Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Progenics Pharmaceuticals, Inc. as of December 31, 2014 and 2013 and the related consolidated statements of operation, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014 of Progenics Pharmaceuticals, Inc. and our report dated March 16, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 16, 2015
Item 9B. Other Information
None.
PART III
The information required by the Form 10-K Items listed in the following table will be included under the respective headings specified for such Items in our definitive proxy statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC:
Item of Form 10-K | Location in 2015 Proxy Statement |
| | |
| Directors, Executive Officers and Corporate Governance | Election of Directors. Executive and Other Officers. Corporate Governance. Code of Business Ethics and Conduct.* Section 16(a) Beneficial Ownership Reporting and Compliance. *The full text of our code of business ethics and conduct is available on our website (www.progenics.com). |
| | |
Item 11. | Executive Compensation | Executive Compensation. Compensation Committee Report. Compensation Committee Interlocks and Insider Participation. |
| | |
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | Equity Compensation Plan Information. Security Ownership of Certain Beneficial Owners and Management. |
| | |
| Certain Relationships and Related Transactions, and Director Independence | Certain Relationships and Related Transactions. Affirmative Determinations Regarding Director Independence and Other Matters. |
| | |
Item 14. | Principal Accounting Fees and Services | Fees Billed for Services Rendered by our Independent Registered Public Accounting Firm. Pre-approval of Audit and Non-Audit Services by the Audit Committee. |
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following documents or the portions thereof indicated are filed as a part of this Annual Report.
| (a) | Documents filed as part of this Annual Report: |
Consolidated Financial Statements of Progenics Pharmaceuticals, Inc.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
| (b) | Financial Statement Schedules |
Schedule II – Valuation and Qualifying Accounts
Financial statement schedules referred to in Item 12-01 of Regulation S-X and not listed above are inapplicable and therefore have been omitted.
| (c) | Item 601 Exhibits:Exhibits |
Those exhibitsExhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately following the signature page hereofof this Report and preceding the exhibits filed herewith, which is incorporated herein by this reference.
PROGENICS PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page |
| F-2 |
Financial Statements: | |
| F-3 |
| F-4 |
| F-5 |
| F-6 |
| F-7 |
| F-8 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Progenics Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Progenics Pharmaceuticals, Inc. as of December 31, 2014 and 2013 and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Progenics Pharmaceuticals, Inc. at December 31, 2014 and 2013 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Progenics Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 16, 2015
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS (amounts in thousands, except for par value and share amounts)
| | December 31, | |
| | 2014 | | | 2013 | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 119,302 | | | $ | 65,860 | |
Accounts receivable, net | | | 109 | | | | 2,879 | |
Other current assets | | | 2,515 | | | | 1,943 | |
Total current assets | | | 121,926 | | | | 70,682 | |
Auction rate securities | | | - | | | | 2,208 | |
Fixed assets, at cost, net of accumulated depreciation and amortization | | | 2,552 | | | | 2,413 | |
Intangible assets, net (Note 2) | | | 28,700 | | | | 31,379 | |
Goodwill | | | 7,702 | | | | 7,702 | |
Other assets | | | 157 | | | | 157 | |
Total assets | | $ | 161,037 | | | $ | 114,541 | |
| | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 6,570 | | | $ | 6,512 | |
Other current liabilities | | | 115 | | | | 115 | |
Total current liabilities | | | 6,685 | | | | 6,627 | |
Contingent consideration liability | | | 17,200 | | | | 15,700 | |
Deferred tax liability - long term | | | 11,332 | | | | 12,321 | |
Other liabilities | | | 911 | | | | 914 | |
Total liabilities | | | 36,128 | | | | 35,562 | |
Commitments and contingencies (Note 9) | | | | | | | | |
Stockholders' equity: | | | | | | | | |
Preferred stock, $.001 par value; 20,000,000 shares authorized; issued and outstanding – none | | | - | | | | - | |
Common stock, $.0013 par value; shares authorized - 160,000,000 in 2014 and 2013; issued – 69,832,949 in 2014 and 61,025,404 in 2013 | | | 91 | | | | 79 | |
Additional paid-in capital | | | 589,826 | | | | 548,510 | |
Accumulated deficit | | | (462,267 | ) | | | (466,677 | ) |
Accumulated other comprehensive loss | | | - | | | | (192 | ) |
Treasury stock, at cost (200,000 shares in 2014 and 2013) | | | (2,741 | ) | | | (2,741 | ) |
Total stockholders' equity | | | 124,909 | | | | 78,979 | |
Total liabilities and stockholders' equity | | $ | 161,037 | | | $ | 114,541 | |
The accompanying notes are an integral part of the financial statements.
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except net income (loss) per share)
| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Revenues: | | | | | | | | | |
Collaboration revenue | | $ | 41,196 | | | $ | 1,595 | | | $ | 8,525 | |
Royalty income | | | 3,101 | | | | 5,923 | | | | 4,963 | |
Research grants | | | - | | | | - | | | | 488 | |
Other revenues | | | 80 | | | | 69 | | | | 72 | |
Total revenues | | | 44,377 | | | | 7,862 | | | | 14,048 | |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Research and development | | | 27,737 | | | | 33,391 | | | | 31,332 | |
License fees – research and development | | | 498 | | | | 567 | | | | 1,170 | |
Royalty expense | | | 357 | | | | 624 | | | | 499 | |
General and administrative | | | 14,944 | | | | 14,602 | | | | 15,214 | |
Depreciation and amortization | | | 545 | | | | 939 | | | | 1,324 | |
Intangible impariment charges | | | 2,676 | | | | 919 | | | | - | |
Change in contingent consideration liability | | | 1,500 | | | | (200 | ) | | | - | |
Total expenses | | | 48,257 | | | | 50,842 | | | | 49,539 | |
| | | | | | | | | | | | |
Other operating income | | | 7,250 | | | | - | | | | - | |
| | | | | | | | | | | | |
Operating income (loss) | | | 3,370 | | | | (42,980 | ) | | | (35,491 | ) |
| | | | | | | | | | | | |
Other income: | | | | | | | | | | | | |
Interest income | | | 51 | | | | 46 | | | | 60 | |
Total other income | | | 51 | | | | 46 | | | | 60 | |
| | | | | | | | | | | | |
Net income (loss) before income tax benefit | | | 3,421 | | | | (42,934 | ) | | | (35,431 | ) |
| | | | | | | | | | | | |
Income tax benefit | | | 989 | | | | 362 | | | | - | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 4,410 | | | $ | (42,572 | ) | | $ | (35,431 | ) |
| | | | | | | | | | | | |
Net income (loss) per share - basic | | $ | 0.06 | | | $ | (0.76 | ) | | $ | (1.02 | ) |
Weighted-average shares - basic | | | 68,185 | | | | 55,798 | | | | 34,754 | |
| | | | | | | | | | | | |
Net income (loss) per share - diluted | | $ | 0.06 | | | $ | (0.76 | ) | | $ | (1.02 | ) |
Weighted-average shares - diluted | | | 68,243 | | | | 55,798 | | | | 34,754 | |
The accompanying notes are an integral part of the financial statements.
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands)
| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Net income (loss) | | $ | 4,410 | | | $ | (42,572 | ) | | $ | (35,431 | ) |
Other comprehensive income: | | | | | | | | | | | | |
Net change in unrealized loss on auction rate securities | | | 192 | | | | 68 | | | | 8 | |
Total other comprehensive income | | | 192 | | | | 68 | | | | 8 | |
Comprehensive income (loss) | | $ | 4,602 | | | $ | (42,504 | ) | | $ | (35,423 | ) |
The accompanying notes are an integral part of the financial statements.
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2014, 2013 and 2012
(amounts in thousands)
| | Common Stock | | Additional | | Accumulated | | Accumulated Other | | Treasury Stock | | | |
| | Shares | | Amount | | Paid-In Capital | | Deficit | | Comprehensive Income (Loss) | | Shares | | Amount | | Total | |
Balance at December 31, 2011 | | | 34,046 | | | 44 | | | 463,440 | | | (388,674 | ) | | (268 | ) | | (200 | ) | | (2,741 | ) | | 71,801 | |
Net loss | | | - | | | - | | | - | | | (35,431 | ) | | - | | | - | | | - | | | (35,431 | ) |
Other comprehensive income | | | - | | | - | | | - | | | - | | | 8 | | | - | | | - | | | 8 | |
Compensation expenses for share-based payment arrangements | | | - | | | - | | | 6,536 | | | - | | | - | | | - | | | - | | | 6,536 | |
Sale of common stock in public offering, net of underwriting discounts and commissions ($1,518) and offering expenses ($434) | | | 12,650 | | | 17 | | | 23,331 | | | - | | | - | | | - | | | - | | | 23,348 | |
Forfeitures of restricted stock | | | (6 | ) | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
Sale of common stock under stock incentive plan and exercise of stock options | | | 75 | | | - | | | 306 | | | - | | | - | | | - | | | - | | | 306 | |
Balance at December 31, 2012 | | | 46,765 | | | 61 | | | 493,613 | | | (424,105 | ) | | (260 | ) | | (200 | ) | | (2,741 | ) | | 66,568 | |
Net loss | | | - | | | - | | | - | | | (42,572 | ) | | - | | | - | | | - | | | (42,572 | ) |
Other comprehensive income | | | - | | | - | | | - | | | - | | | 68 | | | - | | | - | | | 68 | |
Compensation expenses for share-based payment arrangements | | | - | | | - | | | 3,546 | | | - | | | - | | | - | | | - | | | 3,546 | |
Acquisition of subsidiary, net of issuance costs | | | 4,472 | | | 6 | | | 11,214 | | | - | | | - | | | - | | | - | | | 11,220 | |
Sale of common stock in public offering, net of underwriting discounts and commissions ($2,581) and offering expenses ($351) | | | 9,775 | | | 12 | | | 40,066 | | | - | | | - | | | - | | | - | | | 40,078 | |
Forfeitures of restricted stock | | | (1 | ) | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
Exercise of stock options | | | 14 | | | - | | | 71 | | | - | | | - | | | - | | | - | | | 71 | |
Balance at December 31, 2013 | | | 61,025 | | | 79 | | | 548,510 | | | (466,677 | ) | | (192 | ) | | (200 | ) | | (2,741 | ) | | 78,979 | |
Net income | | | - | | | - | | | - | | | 4,410 | | | - | | | - | | | - | | | 4,410 | |
Other comprehensive income | | | - | | | - | | | - | | | - | | | 192 | | | - | | | - | | | 192 | |
Compensation expenses for share-based payment arrangements | | | - | | | - | | | 3,523 | | | - | | | - | | | - | | | - | | | 3,523 | |
Sale of common stock in public offering, net of underwriting discounts and commissions ($2,415) and offering expenses ($376) | | | 8,750 | | | 12 | | | 37,447 | | | - | | | - | | | - | | | - | | | 37,459 | |
Acquisition of subsidiary escrow shares returned | | | (19 | ) | | - | | | (82 | ) | | - | | | - | | | - | | | - | | | (82 | ) |
Exercise of stock options | | | 77 | | | - | | | 428 | | | - | | | - | | | - | | | - | | | 428 | |
Balance at December 31, 2014 | | | 69,833 | | | 91 | | | 589,826 | | | (462,267 | ) | | - | | | (200 | ) | | (2,741 | ) | | 124,909 | |
The accompanying notes are an integral part of the financial statements.
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)
| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Cash flows from operating activities: | | | | | | | | | |
Net (loss) income | | $ | 4,410 | | | $ | (42,572 | ) | | $ | (35,431 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 545 | | | | 939 | | | | 1,324 | |
(Gains) losses on sales of fixed assets | | | (110 | ) | | | 204 | | | | (327 | ) |
Intangible impairment charge | | | 2,676 | | | | 919 | | | | - | |
Deferred income tax | | | (989 | ) | | | (362 | ) | | | - | |
Change in contingent consideration liability | | | 1,500 | | | | (200 | ) | | | - | |
Expenses for share-based compensation awards | | | 3,523 | | | | 3,546 | | | | 6,536 | |
Acquisition of subsidiary escrow shares returned | | | (82 | ) | | | - | | | | - | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Decrease (increase) in accounts receivable | | | 2,770 | | | | 4,114 | | | | (5,421 | ) |
(Increase) decrease in other current assets | | | (572 | ) | | | 336 | | | | (754 | ) |
Decrease (increase) in deferred tax and other assets | | | - | | | | 2,044 | | | | (2,002 | ) |
Increase (decrease) in accounts payable and accrued expenses | | | 58 | | | | (1,956 | ) | | | (691 | ) |
(Decrease) increase in deferred revenue – current | | | - | | | | (886 | ) | | | 634 | |
(Decrease) increase in deferred tax and other current liabilities | | | - | | | | (2,069 | ) | | | 2,069 | |
(Decrease) in deferred revenue - long term | | | - | | | | - | | | | (162 | ) |
(Decrease) in other liabilities | | | (3 | ) | | | (164 | ) | | | (419 | ) |
Net cash provided by (used in) operating activities | | | 13,726 | | | | (36,107 | ) | | | (34,644 | ) |
Cash flows from investing activities: | | | | | | | | | | | | |
Cash acquired in acquisition of subsidiary | | | - | | | | 1,888 | | | | - | |
Capital expenditures | | | (714 | ) | | | (137 | ) | | | (767 | ) |
Proceeds from sales of fixed assets | | | 143 | | | | 174 | | | | 390 | |
Proceeds from redemption of auction rate securities | | | 2,400 | | | | 1,100 | | | | 100 | |
Net cash provided by (used in) investing activities | | | 1,829 | | | | 3,025 | | | | (277 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Equity issuance costs in connection with acquisition of subsidiary | | | - | | | | (45 | ) | | | - | |
Proceeds from public offering of common stock, net of underwriting discounts and commissions and offering expenses | | | 37,459 | | | | 40,078 | | | | 23,348 | |
Proceeds from the exercise of stock options and sale of common stock under the employee stock purchase plans | | | 428 | | | | 71 | | | | 306 | |
Net cash provided by financing activities | | | 37,887 | | | | 40,104 | | | | 23,654 | |
Net increase (decrease) in cash and cash equivalents | | | 53,442 | | | | 7,022 | | | | (11,267 | ) |
Cash and cash equivalents at beginning of period | | | 65,860 | | | | 58,838 | | | | 70,105 | |
Cash and cash equivalents at end of period | | $ | 119,302 | | | $ | 65,860 | | | $ | 58,838 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Contingent consideration liability | | | | | | $ | $15,700 | | | | | |
Stock acquisition consideration | | | | | | $ | $11,265 | | | | | |
The accompanying notes are an integral part of the financial statements.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts or as otherwise noted)
1. Organization and Business
Progenics Pharmaceuticals, Inc. ("Progenics," "we" or "us") develops innovative medicines for oncology. Our clinical development efforts center on late-stage oncology assets. We are conducting phase 2 clinical trial of our therapeutic candidate for prostate cancer, PSMA ADC, a fully human monoclonal antibody-drug conjugate (ADC), and have recently completed a phase 2 trial of 1404 (trofolastat), an imaging agent candidate also for prostate cancer. We resumed a pivotal phase 2 clinical trial of Azedra™, our ultra-orphan radiotherapy candidate for pheochromocytoma.
We have licensed our first commercial drug, Relistor® (methylnaltrexone bromide) subcutaneous injection for the treatment of opioid induced constipation (OIC), to Salix Pharmaceuticals, Inc., which in September 2014 received an expanded approval from the U.S. Food and Drug Administration for the treatment of OIC in patients taking opioids for chronic non-cancer pain. We have partnered other internally-developed or acquired compounds and technologies with third parties. We continue to consider opportunities for strategic collaborations, out-licenses and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and may in the future also in-license or acquire additional oncology compounds and/or programs.
Our current principal sources of revenue from operations are royalty, commercialization milestone and revenue-sharing payments from Salix's Relistor operations. Royalty and milestone payments from Relistor depend on success in development and commercialization, which is dependent on many factors, such as Salix's efforts, decisions by the FDA and other regulatory bodies, competition from drugs for the same or similar indications, and the outcome of clinical and other testing of Relistor.
We fund our operations to a significant extent from capital-raising. During 2014, we raised $37.5 million in an underwritten public offering of 8.75 million shares of common stock at a public offering price of $4.60 per share, and entered into an agreement with an investment bank under which we may sell from time to time up to $50 million of our stock. During 2013, we completed an underwritten public offering of 9.8 million shares of common stock at a public offering price of $4.40 per share, resulting in net proceeds of approximately $40.1 million.
Progenics commenced principal operations in 1988, became publicly traded in 1997 and throughout has been engaged primarily in research and development efforts, establishing corporate collaborations and related activities. Certain of our intellectual property rights are held by wholly owned subsidiaries. All of our operations are conducted at our facilities in Tarrytown, New York. We operate under a single research and development segment.
Funding and Financial Matters. At December 31, 2014, we held $119.3 million in cash and cash equivalents, an increase of $53.4 million from $65.9 million at December 31, 2013. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year. We expect to require additional funding in the future, the availability of which is never guaranteed and may be uncertain. We expect that we may continue to incur operating losses for the foreseeable future.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the U.S. (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, the Company evaluates its estimates, including but not limited to those related to collectability of receivables, intangible assets and contingencies. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in the operating results. Actual results could differ from those estimates. Certain amounts have been reclassified in prior periods' financial statements to conform to the current year presentation. This includes the reclassification of (i) certain expenses for share-based compensation from research and development to general and administrative expenses, (ii) certain non-cash items from general and administrative expenses to intangible impairment charges and change in contingent consideration liability, and (iii) certain expenses from royalty expense to license fees – research and development, which reclassifications had no effect on total expenses as previously reported.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Consolidation
The consolidated financial statements include the accounts of Progenics and PSMA LLC, as of and for the years ended December 31, 2014, 2013 and 2012 and Molecular Insight from January 18, 2013, the date we acquired this subsidiary. Inter-company transactions have been eliminated in consolidation.
Revenue Recognition
We recognize revenue from all sources based on the provisions of the SEC's Staff Accounting Bulletin (SAB) No. 104 (SAB 104) and ASC 605 Revenue Recognition. Under ASC 605, delivered items are separate units of accounting, provided (i) the delivered items have value to a collaborator on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control. A separate update to ASC 605 provides guidance on the criteria that should be met when determining whether the milestone method of revenue recognition is appropriate.
If we are involved in a steering or other committee as part of a multiple-deliverable 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. We 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 ASC 605 are met, the amounts are determinable and collection of the related receivable is reasonably assured.
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue. Amounts not expected to be recognized within one year of the balance sheet date are classified as long-term. The estimate of the classification of deferred revenue as short- or long-term is based upon the period in which we expect to perform joint committee services.
Royalty revenue is recognized in the period the sales occur, provided the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no remaining performance obligations under the arrangement providing for the royalty. Royalty loss is recognized based upon reported sales deductions in excess of gross sales resulting in net sales (losses) and is recognized in the period net sales (losses) occur. Royalty loss is classified in royalty income in the consolidated statements of operations and the related accrued royalty loss liability is classified in accounts payable and accrued expenses in the consolidated balance sheets.
During the past three years, we also recognized revenue from sales of research reagents and during 2013 and 2012, from government research grants, awarded to us by the National Institutes of Health (NIH), which we used in proprietary research programs. NIH grant revenue is recognized as efforts are expended and as related program costs are incurred. We performed work under the NIH grants on a best-effort basis.
During 2014, we have recognized as third quarter revenue a $40.0 million milestone receivable from Salix upon U.S. marketing approval for subcutaneous Relistor in non-cancer pain patients in September (paid pursuant to the Salix license in October) and a $1.0 million milestone payment from FUJIFILM RI Pharma in the first quarter of 2014.
During the third quarter of 2014, Salix entered into an agreement with Lupin Limited for distribution of Relistor in Canada. We have not recognized any revenue in 2014, since terms of the Salix and Progenics negotiations were not fixed and determinable as of the end of the year.
Under our 2013 license of certain research, development and commercialization rights to Onalta™, we received a $0.2 million in upfront payment and are eligible for future milestone and royalty payments. In consideration for the upfront payment, we have delivered relevant know-how (including patent rights), inventory and non-reimbursable services.
In the fourth quarter of 2012, we out-licensed our C. difficile program to MedImmune, LLC for a $5.0 million upfront payment, and the right to receive potential future milestone and royalty payments. In consideration for the upfront payment, we have delivered relevant know-how (including patent rights) and non-reimbursable services.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Under our 2012 agreement with CytoDyn Inc. for our PRO 140 program, we received $3.5 million payment and are eligible for future milestone and royalty payments. In consideration for the upfront payment, we have delivered relevant know-how (including patent rights), inventory and non-reimbursable services.
Under our license agreement, Salix is responsible for further developing and commercializing Relistor worldwide. In consideration of the $60.0 million upfront payment from Salix, we have granted Salix an exclusive license of relevant know-how, patent rights and technology, assigned relevant third-party contracts, and served on joint committees provided for in the License Agreement through end of 2013.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, maintenance of research equipment, costs related to research collaboration and licensing agreements, the purchase of in-process research and development, the cost of services provided by outside contractors, including services related to our clinical trials, the full cost of manufacturing drug for use in research, pre-clinical development and clinical trials. All costs associated with research and development are expensed as incurred.
At each period end, we evaluate the accrued expense balance related to these activities based upon information received from the suppliers and estimated progress towards completion of the research or development objectives to ensure that the balance is reasonably stated. Such estimates are subject to change as additional information becomes available.
Use of Estimates
Significant estimates include useful lives of fixed assets, the periods over which certain revenues and expenses will be recognized, including collaboration revenue recognized from non-refundable up-front licensing payments and expense recognition of certain clinical trial costs which are included in research and development expenses, the amount of non-cash compensation costs related to share-based payments to employees and non-employees and the periods over which those costs are expensed, the likelihood of realization of deferred tax assets and the assumptions used in the valuations of in-process research and development and contingent consideration liability.
Patents
As a result of research and development efforts conducted by us, we have applied, or are applying, for a number of patents to protect proprietary inventions. All costs associated with patents are expensed as incurred.
Net Income (Loss) Per Share
We prepare earnings per share (EPS) data in accordance with ASC 260 Earnings Per Share. Basic net (loss) income per share amounts have been computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. For 2014, we reported net income, and the computation of diluted earnings per share is based upon the weighted-average number of our common shares and dilutive effect, determined using the treasury stock method, of potential common shares outstanding including amounts of unrecognized compensation expense. In periods where shares to be issued upon the assumed conversion of the contingent consideration liability have an anti-dilutive effect on the calculation of diluted earnings per share, these shares are excluded from the calculation. For 2013 and 2012, we reported net losses and, therefore, potential common shares, amounts of unrecognized compensation expense and windfall tax benefits have been excluded from diluted net loss per share since they would be anti-dilutive. As of December 31, 2012, 28 shares of unvested restricted stock outstanding have non-forfeitable rights to dividends; all such shares were vested at the end of December 31, 2013. The allocation of 2013 and 2012 net losses to these participating securities pursuant to the two-class method is not material to both basic and diluted earnings per share.
Concentrations of Credit Risk
Financial instruments which potentially subject Progenics to concentrations of risk consist principally of cash, cash equivalents, auction rate securities and receivables. We invest our excess cash in money market funds. We have established guidelines that relate to credit quality, diversification and maturity and that limit exposure to any one issue of securities. We hold no collateral for these financial instruments.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Cash and Cash Equivalents
We consider all highly liquid investments which have maturities of three months or less, when acquired, to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Cash and cash equivalents subject us to concentrations of credit risk. At December 31, 2014 and 2013, we have invested approximately $112,808 and $60,364, respectively, in cash equivalents in the form of money market funds with one major investment company and held approximately $6,494 and $5,496, respectively, in two commercial banks.
Accounts Receivable
We estimate the level of accounts receivable which ultimately will be uncollectable based on a review of specific receivable balances, industry experience and the current economic environment. We reserve for affected accounts receivable an allowance for doubtful accounts, which at December 31, 2014 and 2013 was $10 and $7, respectively.
Auction Rate Securities
In accordance with ASC 320 Investments – Debt and Equity Securities, investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in comprehensive income (loss)\. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income or expense. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense. In computing realized gains and losses, we compute the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. The fair value of auction rate securities has been estimated based on a three-level hierarchy for fair value measurements. Interest and dividends on securities classified as available-for-sale are included in interest income (see Note 3).
During the fourth quarter of 2014, all of the $2,208 auction rate securities remaining at December 31, 2013 have been redeemed at par. At December 31, 2013, our investment in auction rate securities (recorded as long-term assets in the Consolidated Balance Sheets) amounted to $2,208. Valuation of securities is subject to uncertainties that are difficult to predict, such as changes to credit ratings of the securities and/or the underlying assets supporting them, default rates applicable to the underlying assets, underlying collateral value, discount rates, counterparty risk, ongoing strength and quality of market credit and liquidity and general economic and market conditions. The valuation of the auction rate securities we held was based on an internal analysis of timing of expected future successful auctions, collateralization of underlying assets of the security and credit quality of the security. Due to the settlement of auction rate securities at par in the fourth quarter of 2014, the temporary impairment amount decreased $192.
In-Process Research and Development and Goodwill
The fair values of in-process research and development (IPR&D) acquired in business combinations are capitalized. The Company utilizes the "income method," which applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each IPR&D project independently. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. IPR&D intangible assets which are determined to have a decline in their fair value are adjusted downward and an impairment loss is recognized in the Consolidated Statements of Operations. These are tested at least annually or when a triggering event occurs that could indicate a potential impairment.
Goodwill represents excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized, but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. The Company determines whether goodwill may be impaired by comparing the fair value of the reporting unit (the Company has determined that it has only one reporting unit for this purpose, which includes Molecular Insight), calculated as the product of shares outstanding and the share price as of the end of a period, to its carrying value (for this purpose, the Company's total stockholders' equity). No goodwill impairment has been recognized as of December 31, 2014 and 2013.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
In connection with the 2013 acquisition of Molecular Insight, in process research and development and goodwill were initially measured at the acquisition date at estimated fair value and capitalized as an intangible asset, as follows:
(i) 1404, an imaging agent in phase 2 development, at an estimated fair value of $23.2 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2017 and a 18% discount rate;
(ii) Azedra, a small molecule candidate for the treatment of pheochromocytoma and paraganglioma in phase 2b development, and for neuroblastoma in phase 2a development, at an estimated fair value of $4.9 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2017 and a 15% discount rate;
(iii) small molecule candidate MIP-1095, in preclinical development for the treatment of prostate cancer, at an estimated fair value of $2.7 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2021 and a 20% discount rate; and
(iv) Onalta, a drug candidate in phase 2 development for the treatment of metastatic carcinoid and pancreatic neuroendocrine tumors, at an estimated fair value of $1.5 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2014 and a 15% discount rate.
A third quarter 2014 review of our Onalta intangible asset resulted in a $560 impairment of the indefinite-lived balance and a $16 impairment of the finite-lived balance, with the corresponding impairment charges recorded in the Consolidated Statements of Operations.
The following table summarizes the activity related to the finite-lived intangible asset:
| | Finite-lived intangible assets | |
Balance at January 1, 2013 | | $ | - | |
Reclassification from indefinite lived IPR&D | | | 21 | |
Amortization expense | | | (2 | ) |
Balance at December 31, 2013 | | | 19 | |
Amortization expense | | | (3 | ) |
Impairment | | | (16 | ) |
Balance at December 31, 2014 | | $ | - | |
The following table reflects, prior to the third quarter write-off, the components of the finite lived intangible assets as of December 31, 2013:
| | Gross Amount | | | Accumulated Amortization | | | Net Carrying Value |
Finite lived intangible assets | | $ | 21 | | | $ | 2 | | | $ | 19 |
Total | | $ | 21 | | | $ | 2 | | | $ | 19 |
The weighted-average remaining life of the finite lived intangible assets was approximately five years at December 31, 2013.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Amortization expense was calculated on a straight-line basis over the estimated useful life of the asset. Amortization expense for the year ended December 31, 2014 was $3 and the period from January 18, 2013 to December 31, 2013 was $2.
The following table summarizes the activity related to the Company's goodwill and indefinite lived IPR&D:
| | Goodwill | | | IPR&D | |
Balance at January 1, 2013 | | $ | - | | | $ | - | |
Increase related to MIP acquisition | | | 7,702 | | | | 32,300 | |
Reclassification to finite lived IPR&D | | | - | | | | (21 | ) |
Impairment | | | - | | | | (919 | ) |
Balance at December 31, 2013 | | $ | 7,702 | | | $ | 31,360 | |
Impairment | | | - | | | | (2,660 | ) |
Balance at December 31, 2014 | | $ | 7,702 | | | $ | 28,700 | |
Fair Value Measurements
In accordance with ASC 820 Fair Value Measurements and Disclosures, we use a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). We assign hierarchy levels to assets constituting our available-for-sale portfolio and to our contingent consideration liability arising from the MIP acquisition based on our assessment of the transparency and reliability of the inputs used in the valuation. ASC 820 defines the three hierarchy levels as:
· | 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 unobservable inputs that are significant to the overall fair value measurement, which as noted above involve management judgment. |
Recurring Fair Value Measurements
We believe the carrying amounts of the Company's cash equivalents, accounts receivable, other current assets, other assets (restricted cash providing collateral for a letter of credit securing lease obligations) and accounts payable and accrued expenses approximated their fair values as of December 31, 2014 and 2013 and due to their short-term nature are considered Level 1 instruments.
The fair value of the contingent consideration liability, consisting of future potential milestone payments related to the MIP acquisition was $17.2 million as of December 31, 2014, $15.7 million as of December 31, 2013 and $15.9 million as January 18, 2013, the acquisition date. The fair value of the contingent consideration liability is categorized as a Level 3 instrument, as displayed in Note 3. The Company records the contingent consideration liability at fair value with changes in estimated fair values recorded in the Consolidated Statements of Operations. During 2014, we reassessed the fair value of the contingent consideration and recorded a $1.5 million increase primarily due to higher probability of success for 1404, partially offset by a decrease due to lower projected revenues for MIP-1095. As of December 31, 2013, we reassessed the fair value of the contingent consideration and recorded a $0.2 million decrease, due to an increase in the discount period. The December 31, 2014 contingent consideration of $17.2 million results from probability adjusted discounted cash flows and Monte Carlo simulation models which include estimates of significant milestone payments to former MIP stockholders under the acquisition agreement ranging from 2018 to 2026 and risk adjusted discount rates of 10% and 3.5% for the milestone-based and net sales targets, respectively.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Nonrecurring Fair Value Measurements
The Company's non-financial assets, such as intangible assets and property and equipment, are measured and recorded at fair value on the acquisition date, and if indicators of impairment exist, we assess recoverability by measuring the amount of any impairment by comparing the carrying value of the asset to its then-current estimated fair value (for intangible assets) or to market prices for similar assets (for property and equipment). If the carrying value is not recoverable we record an impairment charge in the Consolidated Statements of Operations. The company reassessed the value of the indefinite lived intangible assets and recorded a non-cash charge to earnings of $2,676 and $919 in 2014 and 2013, respectively. These impairments were the result of changes in the Level 3 assumptions as follows: the timing of beginning cash inflows from 2021 to 2024 and a decrease in discount rate from 20% to 13.5% for the MIP-1095 intangible asset, in addition to the third quarter 2014 and fourth quarter 2013 impairments of the Onalta indefinite-lived and finite-lived intangible assets, resulting from decreased probabilities of success. An increase in the current discount rate of 0.135% or decrease in the probability of success of 0.194% would result in an impairment of the remaining book value of the MIP-1095 intangible asset. In connection with the second quarter 2013 amendment of the Company's Tarrytown lease, we recognized impairment losses of $347 on leasehold improvements and machinery and equipment removed from service, which are included in Research and development expenses in our accompanying Consolidated Statements of Operations for the year ended December 31, 2013. No impairments occurred for the year ended December 31, 2012.
Other current assets are comprised of prepaid expenses, interest and other receivables of $2,515 and $1,943 at December 31, 2014 and 2013, respectively, which are expected to be settled within one year. Restricted cash, included in other assets, of $157 at December 31, 2014 and 2013 consists of collateral for a letter of credit securing lease obligations. We believe the carrying value of these assets approximates fair value and are considered Level 1 assets.
Fixed Assets
Leasehold improvements, furniture and fixtures, and equipment are stated at cost. Furniture, fixtures and equipment are depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the life of the lease or of the improvement, whichever is shorter. Costs of construction of long-lived assets are capitalized but are not depreciated until the assets are placed in service.
Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in operations. The estimated useful lives of fixed assets are as follows:
Computer equipment | 3 years |
Machinery and equipment | 5-7 years |
Furniture and fixtures | 5 years |
Leasehold improvements | Earlier of life of improvement or lease |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Deferred Lease Liability and Incentive
Our lease agreements include fixed escalations of minimum annual lease payments and we recognize rental expense on a straight-line basis over the lease terms and record the difference between rent expense and current rental payments as deferred lease liability. Deferred lease incentive includes a construction allowance from our landlord which is amortized as a reduction to rental expense on a straight-line basis over the lease term. As of December 31, 2014 and 2013, the Consolidated Balance Sheets include the following:
| | 2014 | | | 2013 |
Other current liabilities: | | | | | |
Deferred lease incentive | | $ | 115 | | | $ | 115 |
Total other current liabilities | | $ | 115 | | | $ | 115 |
Other liabilities: | | | | | | | |
Deferred lease liability | | $ | 336 | | | $ | 224 |
Deferred lease incentive | | | 575 | | | | 690 |
Total other liabilities | | $ | 911 | | | $ | 914 |
Income Taxes
We account for income taxes in accordance with the provisions of ASC 740 Income Taxes, which requires that we recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (temporary differences) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. A valuation allowance is established for deferred tax assets for which realization is uncertain.
In accordance with ASC 718 Compensation – Stock Compensation and ASC 505 Equity, we have made a policy decision related to intra-period tax allocation, to account for utilization of windfall tax benefits based on provisions in the tax law that identify the sequence in which amounts of tax benefits are used for tax purposes (i.e., tax law ordering).
Uncertain tax positions are accounted for in accordance with ASC 740 Income Taxes, which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that we have taken or expect to take on a tax return. ASC 740 applies to income taxes and is not intended to be applied by analogy to other taxes, such as sales taxes, value-add taxes, or property taxes. We review our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our ASC 740 liability, if any, or require an additional liability to be recorded. Such events may be the resolution of issues raised by a taxing authority, expiration of the statute of limitations for a prior open tax year or new transactions for which a tax position may be deemed to be uncertain. Those positions, for which management's assessment is that there is more than a 50 percent probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to the measurement criteria of ASC 740. We record the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. Any ASC 740 liabilities for which we expect to make cash payments within the next twelve months are classified as "short term." In the event that we conclude that we are subject to interest and/or penalties arising from uncertain tax positions, we will record interest and penalties as a component of income taxes (see Note 12).
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Risks and Uncertainties
We have to date relied principally on external funding, collaborations with Salix, Fuji and others, out-licensing and asset sale arrangements, royalty and product revenue to finance our operations. There can be no assurance that our research and development will be successfully completed, that any products developed will obtain necessary marketing approval by regulatory authorities or that any approved products will be commercially viable. In addition, we operate in an environment of rapid change in technology, and we are dependent upon satisfactory relationships with our partners and the continued services of our current employees, consultants and subcontractors. We are also dependent upon Salix and Fuji fulfilling their manufacturing obligations, either on their own or through third-party suppliers. For 2014, 2013 and 2012, the primary sources of our revenues were Salix, Ono, Fuji, asset out-licensing and disposition, and research grant revenues from the NIH (2013 and 2012). There can be no assurance that revenues from asset out-licensing and disposition, Salix and Fuji will continue. Substantially all of our accounts receivable at December 31, 2014 and 2013 were from the above-named sources.
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) includes net income (loss) adjusted for the change in net unrealized gain or loss on auction rate securities. The disclosures required by ASC 220 Comprehensive Income for 2014, 2013 and 2012 have been included in the Consolidated Statements of Comprehensive Income (Loss). There was no income tax expense/benefit allocated to any component of Other Comprehensive Income (Loss) (see Note 12).
Legal Proceedings
From time to time, we may be a party to legal proceedings in the course of our business. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Company records accruals for contingencies to the extent that the occurrence of the contingency is probable and the amount of liability is reasonably estimable. If the reasonable estimate of liability is within a range of amounts and some amount within the range appears to be a better estimate than any other, then the Company records that amount as an accrual. If no amount within the range is a reasonable estimate, then the Company records the lowest amount as an accrual. Loss contingencies that are assessed as remote are not reported in the financial statements, or in the notes to the consolidated financial statements.
Impact of Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, which provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance. This ASU provides that an entity should recognize revenue to depict transfers of promised goods or services to customers in amounts reflecting the consideration to which the entity expects to be entitled in the transaction by: (1) identifying the contract; (2) identifying the contract's performance obligations; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when or as the entity satisfies the performance obligations. The ASU will be effective for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is not permitted. The guidance permits companies to apply the requirements either retrospectively to all prior periods presented or in the year of adoption through a cumulative adjustment. We are evaluating the prospective impact of the pending adoption of this ASU on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective in the first annual period ending after December 15, 2016, unless we adopt it earlier. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements and consolidated notes to these statements.
3. Fair Value Measurements
During the fourth quarter of 2014, all of the $2,208 (net of $192 unrealized loss) auction rate securities remaining at December 31, 2013 have been redeemed at par.
We record auction rate securities at fair value in the accompanying Consolidated Balance Sheets in accordance with ASC 320 Investments – Debt and Equity Securities. The change in the fair value of these securities is recorded as a component of other comprehensive (loss) income. We also record the contingent consideration liability resulting from the MIP acquisition at fair value in accordance with ASC 820-10-50.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
The following tables present our money market funds, included in cash and cash equivalents, auction rate securities assets in 2013, and contingent consideration liability measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy:
| | | | | Fair Value Measurements at December 31, 2014 |
| | Balance at December 31, 2014 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | | | | | |
Money market funds | | $ | 112,808 | | | $ | 112,808 | | | $ | - | | | $ | - |
Total Assets | | $ | 112,808 | | | $ | 112,808 | | | $ | - | | | $ | - |
| | | | | | | | | | | | | | | |
Liability: | | | | | | | | | | | | | | | |
Contingent consideration | | $ | 17,200 | | | $ | - | | | $ | - | | | $ | 17,200 |
Total Liability | | $ | 17,200 | | | $ | - | | | $ | - | | | $ | 17,200 |
| | | | | Fair Value Measurements at December 31, 2013 |
| | Balance at December 31, 2013 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | | | | | |
Money market funds | | $ | 60,364 | | | $ | 60,364 | | | $ | - | | | $ | - |
Auction rate securities | | | 2,208 | | | | - | | | | - | | | | 2,208 |
Total Assets | | $ | 62,572 | | | $ | 60,364 | | | $ | - | | | $ | 2,208 |
| | | | | | | | | | | | | | | |
Liability: | | | | | | | | | | | | | | | |
Contingent consideration | | $ | 15,700 | | | $ | - | | | $ | - | | | $ | 15,700 |
Total Liability | | $ | 15,700 | | | $ | - | | | $ | - | | | $ | 15,700 |
At December 31, 2013, we held $2,208 in auction rate securities which were classified as Level 3. The fair value of these securities included U.S. government subsidized securities collateralized by student loan obligations, with maturities greater than 10 years. We have received all scheduled interest payments on these securities.
The valuation of auction rate securities we held was based on Level 3 unobservable inputs which consisted of our internal analysis of (i) timing of expected future successful auctions or issuer calls of the securities, (ii) collateralization of underlying assets of the security and (iii) credit quality of the security. Due to the 2014 redemption of auction rate securities, the temporary impairment amount of $192 as of December 31, 2013 has been reversed, which is reflected in the accumulated other comprehensive income (loss) on our accompanying Consolidated Balance Sheets.
The estimated fair value of the contingent consideration liability of $17,200 as of December 31, 2014, represents future potential milestone payments to former MIP stockholders. The Company considers this liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs were the probabilities of achieving regulatory approval of the development projects and subsequent commercial success, and discount rates.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively. The Company records the contingent consideration liability at fair value with changes in estimated fair values recorded in change in contingent consideration liability in the Consolidated Statements of Operations.
The following tables present quantitative information pertaining to the fair value measurement of the Level 3 inputs as of December 31, 2014 and 2013:
| | Fair Value as of December 31, 2014 | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) |
Contingent consideration liability: | | | | | | |
| | | | | | | | |
Azedra commercialization | | $ | 2,300 | | Probability adjusted discounted cash flow model | | Probability of success | | | 40% |
| | | | | | | Period of milestone expected achievement | | | 2018 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
1404 commercialization | | $ | 3,800 | | Probability adjusted discounted cash flow model | | Probability of success | | | 59% |
| | | | | | | Period of milestone expected achievement | | | 2019 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
MIP-1095 commercialization | | $ | 400 | | Probability adjusted discounted cash flow model | | Probability of success | | | 19% |
| | | | | | | Period of milestone expected achievement | | | 2023 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
Net sales targets | | $ | 10,700 | | Monte-Carlo simulation | | Probability of success | | | 19% - 59% (37.4%) |
| | | | | | | Period of milestone expected achievement | | | 2019 - 2026 |
| | | | | | | Discount rates(1) | | | 12%/3.5% |
| | Fair Value as of December 31, 2013 | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) |
Asset: | | | | | | | | |
Auction Rate Securities | | $ | 2,208 | | Discounted cash flow model | | Redemption period | | 5 to 15 years (6 years) |
| | | | | | | Discount rate | | | 0.25% - 3.00% (1.55%) |
Contingent consideration liability: | | | | | | | |
| | | | | | | | | | |
Azedra commercialization | | $ | 2,300 | | Probability adjusted discounted cash flow model | | Probability of success | | | 40% |
| | | | | | | Period of milestone expected achievement | | | 2017 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
1404 commercialization | | $ | 2,000 | | Probability adjusted discounted cash flow model | | Probability of success | | | 31% |
| | | | | | | Period of milestone expected achievement | | | 2018 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
MIP-1095 commercialization | | $ | 500 | | Probability adjusted discounted cash flow model | | Probability of success | | | 19% |
| | | | | | | Period of milestone expected achievement | | | 2021 |
| | | | | | | Discount rate | | | 10% |
| | | | | | | | | | |
Net sales targets | | $ | 10,900 | | Monte-Carlo simulation | | Probability of success | | | 19% - 40% (32.8%) |
| | | | | | | Period of milestone expected achievement | | | 2018 - 2022 |
| | | | | | | Discount rate(1) | | | 12.5% |
(1) At December 31, 2014, net sales targets contingent consideration liability was derived from a model under a risk neutral framework resulting in the application of 12% and 3.5% discount rates to estimated cash flows.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated:
| | Asset – Auction Rate Securities Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |
Description | | 2014 | | | 2013 | |
Balance at beginning of period | | $ | 2,208 | | | $ | 3,240 | |
Transfers into Level 3 | | | - | | | | - | |
Total realized/unrealized gains (losses) | | | | | | | | |
Included in net income (loss) | | | - | | | | - | |
Included in comprehensive income (loss) | | | 192 | | | | 68 | |
Settlements | | | (2,400 | ) | | | (1,100 | ) |
Balance at end of period | | $ | - | | | $ | 2,208 | |
Total amount of unrealized gains (losses) for the period included in other comprehensive income (loss) attributable to the change in fair market value of related assets still held at the reporting date | | $ | - | | | $ | - | |
| | Liability – Contingent Consideration Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |
Description | | 2014 | | | 2013 | |
Balance at beginning of period | | $ | 15,700 | | | $ | - | |
Fair value of contingent consideration – acquisition of Molecular Insight | | | - | | | | 15,900 | |
Fair value adjustment to contingent consideration included in net income (loss) | | | 1,500 | | | | (200 | ) |
Balance at end of period | | $ | 17,200 | | | $ | 15,700 | |
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period | | $ | 1,500 | | | $ | (200 | ) |
The following tables summarize the amortized cost basis, the aggregate fair value and gross unrealized holding gains and losses at December 31, 2013:
| | Amortized | | | Fair | | | Unrealized Holding | |
2013: | | Cost Basis | | | Value | | | Gains | | | (Losses) | | | Net | |
Maturities greater than ten years: | | | | | | | | | | | | | | | |
Auction rate securities | | $ | 2,400 | | | $ | 2,208 | | | $ | - | | | $ | (192 | ) | | $ | (192 | ) |
| | $ | 2,400 | | | $ | 2,208 | | | $ | - | | | $ | (192 | ) | | $ | (192 | ) |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
We compute the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium.
The following table shows the gross unrealized losses and fair value of our auction rate securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2013.
2013: | | Less than 12 Months | | | 12 Months or Greater | | | Total | |
Description of Securities | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | |
| | | | | | | | | | | | | | | | | | |
Auction rate securities | | $ | - | | | $ | - | | | $ | 2,208 | | | $ | (192 | ) | | $ | 2,208 | | | $ | (192 | ) |
Total | | $ | - | | | $ | - | | | $ | 2,208 | | | $ | (192 | ) | | $ | 2,208 | | | $ | (192 | ) |
Other-than-temporary impairment analysis on auction rate securities. The unrealized losses on our auction rate securities resulted from an internal analysis of timing of expected future successful auctions, collateralization of underlying assets of the security and credit quality of the security. At December 31, 2013 there was one security with a gross unrealized loss position of $192 ($2,208 of the total fair value).
The severity of the unrealized losses for auction rate securities at December 31, 2013 was 8 percent below amortized cost, and the weighted average duration of the unrealized losses for these securities was 70 months.
We have evaluated our individual auction rate securities holdings for other-than-temporary impairment and determined that the unrealized losses as of December 31, 2013 were attributable to uncertainty in the liquidity of the auction rate security market. We did not consider these securities to be other-than-temporarily impaired at December 31, 2013.
4. Accounts Receivable
Our accounts receivable represent amounts due to Progenics from collaborators, royalties, research grants and the sales of research reagents, and as of December 31, 2014 and 2013, consisted of the following:
| | 2014 | | | 2013 | |
Collaborators | | $ | 14 | | | $ | 12 | |
Royalties | | | 40 | | | | 2,862 | |
Other | | | 65 | | | | 12 | |
| | | 119 | | | | 2,886 | |
Less, allowance for doubtful accounts | | | (10 | ) | | | (7 | ) |
Total | | $ | 109 | | | $ | 2,879 | |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
5. Fixed Assets
Fixed assets as of December 31, 2014 and 2013 consisted of the following:
| | 2014 | | | 2013 | |
Computer equipment | | $ | 1,784 | | | $ | 2,234 | |
Machinery and equipment | | | 5,238 | | | | 7,091 | |
Furniture and fixtures | | | 116 | | | | 170 | |
Leasehold improvements | | | 5,027 | | | | 5,020 | |
Other | | | 208 | | | | 16 | |
| | | 12,373 | | | | 14,531 | |
Less, accumulated depreciation and amortization | | | (9,821 | ) | | | (12,118 | ) |
Total | | $ | 2,552 | | | $ | 2,413 | |
At December 31, 2014 and 2013, $1.8 million and $2.0 million, respectively, of leasehold improvements, net were being amortized over periods of 6.4-10.8 years and 8.5-10.8 years, respectively, under leases with terms through December 31, 2020.
6. Accounts Payable and Accrued Expenses
The carrying value of our accounts payable and accrued expenses approximates fair value, as it represents amounts due to vendors and employees, which will be satisfied within one year. Accounts payable and accrued expenses as of December 31, 2014 and 2013, consisted of the following:
| | 2014 | | | 2013 | |
Accrued consulting and clinical trial costs | | $ | 2,662 | | | $ | 2,672 | |
Accrued payroll and related costs | | | 1,722 | | | | 2,123 | |
Legal and professional fees | | | 1,063 | | | | 608 | |
Accounts payable and other | | | 1,040 | | | | 793 | |
Other | | | 83 | | | | 316 | |
Total | | $ | 6,570 | | | $ | 6,512 | |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
7. Restructuring
We incurred a $0.4 million headcount reduction restructuring obligation in the first quarter of 2014, which was fully paid as of the end of the third quarter 2014. A first quarter 2013 headcount reduction resulted in a $1.5 million restructuring obligation paid that year. During the second quarter of 2013, we incurred other exit and contract termination costs, including in connection with termination of a Molecular facilities lease ($0.9 million) and amendment and consolidation of the Company's facilities lease ($0.5 million).
Activity in the restructuring accrual, which is included in accounts payable and accrued expenses in our Consolidated Balance Sheets, and in research and development and general and administrative expenses in the Consolidated Statements of Operations, is specified below.
| | Severance and Related Benefits | | | Other Exit Costs | | | Contract Termination Costs | | | Total Restructuring Accrual | |
Balance at December 31, 2011 | | $ | 571 | | | $ | 6 | | | $ | 154 | | | $ | 731 | |
Additions, net | | | 1,905 | | | | 184 | | | | 3 | | | | 2,092 | |
Payments | | | (1,663 | ) | | | (190 | ) | | | (157 | ) | | | (2,010 | ) |
Balance at December 31, 2012 | | | 813 | | | | - | | | | - | | | | 813 | |
Additions, net | | | 1,492 | | | | 15 | | | | 1,359 | | | | 2,866 | |
Payments | | | (2,305 | ) | | | (15 | ) | | | (1,359 | ) | | | (3,679 | ) |
Balance at December 31, 2013 | | | - | | | | - | | | | - | | | | - | |
Additions, net | | | 359 | | | | - | | | | - | | | | 359 | |
Payments | | | (359 | ) | | | - | | | | - | | | | (359 | ) |
Balance at December 31, 2014 | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
8. Stockholders' Equity
We are authorized to issue 160.0 million shares of Common Stock, par value $.0013, and 20.0 million shares of preferred stock, par value $.001. The Board of Directors has the authority to issue common and preferred shares, in series, with rights and privileges as determined by the Board of Directors. In the first quarter of 2014 we raised $37,459 in an underwritten public offering of 8,750 shares of common stock, and entered into an agreement with an investment bank under which we may sell from time to time up to $50,000 of our stock. In July 2013 we completed a public offering of 9,775 shares of common stock, with net proceeds of approximately $40,078.
9. Commitments and Contingencies
a. Operating Leases
As of December 31, 2014, we leased office, manufacturing and laboratory space, under lease agreements expiring in December 2020. Rental payments are recognized as rent expense on a straight-line basis over the term of the lease. In addition to rents due under these agreements, we are obligated to pay additional facilities charges, including utilities, taxes and operating expenses.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
As of December 31, 2014, future minimum annual payments under all operating lease agreements are as follows:
Years ending December 31, | | Minimum Annual Payments |
2015 | | $ | 1,887 |
2016 | | | 1,934 |
2017 | | | 1,983 |
2018 | | | 2,032 |
2019 | | | 2,083 |
Thereafter | | | 2,135 |
Total | | $ | 12,054 |
Rental expense totaled approximately $1,864, $3,548 and $2,074 for 2014, 2013 and 2012, respectively. For 2014, 2013 and 2012, amounts paid exceeded rent expense by $3, $164 and $419, respectively, due to the recognition of lease incentives. Additional facility charges, including utilities, taxes and operating expenses, for 2014, 2013 and 2012 were approximately $2,117, $2,330 and $2,845, respectively.
b. Licensing, Service and Supply Agreements
Progenics and its subsidiaries have entered into intellectual property-based license and service agreements in connection with product development programs, and have recognized milestone, license and sublicense fees and supply costs, included in research and development expenses, totaling approximately $498, $567 and $1,170 during the last three years, respectively.
| | Paid from inception to December 31, 2014 | | | | Terms |
PSMA LLC agreements with: |
Seattle Genetics, Inc. | | $ | 4,501 | | $ | 13,800 | | Milestone and periodic maintenance payments to use ADC technology to link chemotherapeutic agents to monoclonal antibodies that target prostate specific membrane antigen. ADC technology is based in part on technology licensed by SGI from third parties. |
Amgen Fremont, Inc. (formerly Abgenix) | | | 1,350 | | | 5,750 | | Milestones and royalties to use XenoMouse® technology for generating fully human antibodies to PSMA LLC's PSMA antigen. |
Former member of PSMA LLC | | | 316 | | | 52,197 | | Annual minimum royalty payments and milestones to use technology related to PSMA. |
| | | | | | | | |
| | Paid from acquisition date to December 31, 2014 | | | | Terms |
MIP agreements with: | | | | | | | | |
| | | | | | | | |
University of Zurich and the Paul Scherrer Institute | | $ | 205 | | $ | 1,160 | | Annual maintenance and license fee payments, milestones and royalties in respect of licensed technology related to 1404. |
University of Western Ontario | | | 16 | | | 335 | | Annual minimum royalty, administration and milestone payments in respect of licensed technology related to Azedra. |
(1) Amounts based on known contractual obligations as specified in the respective license agreements, which are dependent on the achievement or occurrence of future milestones or events and exclude amounts for royalties which are dependent on future sales and are unknown.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
In addition, we are planning to out-license or terminate non-germane Molecular Insight licenses and service agreements, as to which we have paid $151 through December 31, 2014, and have future commitments of $14,425, subject to occurrence of future milestones or events. In February 2015 we have terminated one of Progenics' license agreements in respect of oncology and other products, as to which we paid $909 through December 31, 2014, and had future commitments of $777, subject to occurrence of milestones or events.
c. Consulting Agreements
As part of our research and development efforts, we have from time to time entered into consulting agreements with external scientific specialists. These agreements contain various terms and provisions, including fees to be paid by us and royalties, in the event of future sales, and milestone payments, upon achievement of defined events, payable by us. Certain of these scientists are advisors to Progenics, and some have purchased our Common Stock or received stock options which are subject to vesting provisions. We have recognized expenses with regard to the consulting agreements of $67, $39 and $8 for 2014, 2013 and 2012, respectively. Those expenses include the fair value of stock options granted during 2013, of approximately $17 and $7 for 2014 and 2013, respectively. Such amounts of fair value are included in research and development expense for each year presented (see Note 10).
d. Retirement Agreement
On March 14, 2012, Progenics and company founder Paul J. Maddon entered into an agreement providing for his retirement as Chief Science Officer. In connection with Dr. Maddon's retirement and termination of his employment agreement, Progenics agreed to pay him an amount equal to $1,789 and provide other benefits under the agreement.
e. Related Party Agreement
In December 2012, Progenics entered into a financial advisory agreement with MTS Health Partners, L.P., of which the Company's Board Chair is a Senior Managing Director and partner, on customary terms and conditions, whereby, in 2013, MTS has received monthly retainers totaling $55 during the term of the agreement and $300 for MTS' services in connection with the Molecular Insight acquisition. This agreement was terminated in June 2013.
f. Legal Proceedings
Progenics is a party to a proceeding brought by a former employee complaining that the Company violated the anti-retaliation provisions of the federal Sarbanes-Oxley law by terminating the former employee. The Company believes the former employee's claims are without merit and is contesting the matter vigorously. The federal District Court hearing the case issued in July 2013 an order denying our motion for summary judgment dismissing the former employee's complaint, making it likely that the proceeding will continue to trial. Given the uncertainty attendant to the proceeding, we have accrued amounts in connection with this matter which are not material to these Consolidated Financial Statements.
In the third quarter of 2014, Progenics and Ono, its former licensee of Relistor in Japan, settled all claims between them relating to an arbitration commenced by Progenics in 2013, the parties' October 2008 License Agreement, and the former licensee's development and commercialization of the drug. In connection therewith, the parties exchanged mutual releases and the former licensee paid Progenics $7.25 million, which has been recorded as other operating income.
10. Share-Based Payment Arrangements
Our share-based compensation to employees includes non-qualified stock options, restricted stock and shares issued under our Purchase Plans, which are compensatory under ASC 718 Compensation – Stock Compensation. We account for share-based compensation to non-employees, including non-qualified stock options and restricted stock, in accordance with ASC 505 Equity.
Compensation cost for share-based awards will be recognized in our financial statements over the related requisite service periods; usually the vesting periods for awards with a service condition. We have made an accounting policy decision to use the straight-line method of attribution of compensation expense, under which the grant date fair value of share-based awards will be recognized on a straight-line basis over the total requisite service period for the total award.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
We have adopted two stock incentive plans, the 1996 Amended Stock Incentive Plan (terminated in 2006) and the 2005 Stock Incentive Plan. Under these Plans as amended, up to 5,000 and 11,450 shares of common stock, respectively, have been reserved for the issuance of awards to employees, consultants, directors and other individuals who render services to Progenics (collectively, Awardees). The Plans contain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment as defined. Each Plan provides for the Board or Committee to grant to Awardees stock options, stock appreciation rights, restricted stock, performance awards or phantom stock, as defined (collectively, Awards). The Committee is also authorized to determine the term and vesting of each Award and the Committee may in its discretion accelerate the vesting of an Award at any time. Stock options granted under the Plans generally vest pro rata over three to five years and have terms of ten years. Restricted stock issued under either Plan generally vested annually over three to five years, unless specified otherwise by the Committee. The exercise price of outstanding non-qualified stock options is usually equal to the fair value of our common stock on the date of grant. The exercise price of non-qualified stock options granted from the 2005 Plan and incentive stock options (ISO) granted from the Plans may not be lower than the fair value of our common stock on the dates of grant. At December 31, 2014, 2013 and 2012, all outstanding stock options were non-qualified options. The 2005 Plan will terminate on March 25, 2024; options granted before termination of the Plans will continue under the respective Plans until exercised, cancelled or expired.
We apply a forfeiture rate to the number of unvested awards in each reporting period in order to estimate the number of awards that are expected to vest. Estimated forfeiture rates are based upon historical data on vesting behavior of employees. We adjust the total amount of compensation cost recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. 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.
Under ASC 718 Compensation – Stock Compensation, 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 noted in the following table. Ranges of assumptions for inputs are disclosed where the value of such assumptions varied during the related period. Historical volatilities are based upon daily quoted market prices of our common stock on The NASDAQ Stock Market LLC over a period equal to the expected term of the related equity instruments. We rely only on historical volatility since it provides the most reliable indication of future volatility. Future volatility is expected to be consistent with historical; historical volatility is calculated using a simple average calculation; 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 2014, 2013 and 2012 our expected term was calculated based upon historical data related to exercise and post-termination cancellation activity; accordingly, for grants issued to employees and directors and officers, we are using expected terms of 5.3 and 7.5 years, 5.3 and 7.4 years and 5.4 and 7.4 years, respectively. The expected term for options granted to non-employees was also calculated separately from stock options granted to employees and directors and officers and was ten years, which is the contractual term of those options. We have never paid dividends and do not expect to pay dividends in the future. Therefore, our dividend rate is zero. The risk-free rate for periods within the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The following table presents assumptions used in computing the fair value of option grants during 2014, 2013 and 2012:
| 2014 | | | 2013 | | | 2012 |
| | | | | | | |
Expected volatility | | 74% – 84% | | | | 73% – 90% | | | | 70% – 85% |
Expected dividends | Zero | | | Zero | | | Zero |
Expected term (years) | | 5.3 – 7.5 | | | | 5.3 – 10 | | | | 5.3 – 10 |
Weighted average expected term (years) | | 5.93 | | | | 5.96 | | | | 6.11 |
Risk-free rate | | 1.64% – 2.42% | | | | 0.76% – 2.83% | | | | 0.57% – 1.71% |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
A summary of option activity under the Plans as of December 31, 2014 and changes during the year then ended is presented below:
Options | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (Yr.) | | | Aggregate Intrinsic Value |
| | | | | | | | | | | |
Outstanding at January 1, 2014 | | | 5,249 | | | $ | 10.94 | | | | | | |
Granted | | | 993 | | | | 4.66 | | | | | | |
Exercised | | | (77 | ) | | | 5.54 | | | | | | |
Forfeited | | | (324 | ) | | | 6.00 | | | | | | |
Expired | | | (423 | ) | | | 13.52 | | | | | | |
Outstanding at December 31, 2014 | | | 5,418 | | | | 9.96 | | | | 5.79 | | | $ | 6,856 |
Exercisable at December 31, 2014 | | | 4,115 | | | $ | 11.40 | | | | 4.89 | | | $ | 3,798 |
The weighted average grant-date fair value of options granted under the Plans during 2014, 2013 and 2012 was $3.41, $3.74 and $6.38, respectively. The total intrinsic value of options exercised during 2014, 2013 and 2012 was $102, $11 and $174, respectively.
The options granted under the Plans, described above, include non-qualified stock options granted to our former CEO on July 3, 2006. For the 2006 award, the requisite service period is the shortest of the explicit or implied service periods and the explicit service period for this award is nine years and 11 months from the grant date.
At December 31, 2014, the estimated requisite service period for the 2006 award was 1.5 years. For 2014, 2013 and 2012, the total compensation expense recognized for the performance-based options was $0.1 million, $0.1 million and $2.0 million, respectively.
The total compensation expense of shares, granted to both employees and non-employees, under all of our share-based payment arrangements that was recognized in operations during 2014, 2013 and 2012 was:
| | 2014 | | | 2013 | | | 2012 |
Recognized as: | | | | | | | | |
Research and Development | | $ | 1,843 | | | $ | 2,012 | | | $ | 4,060 |
General and Administrative | | | 1,680 | | | | 1,534 | | | | 2,476 |
Total | | $ | 3,523 | | | $ | 3,546 | | | $ | 6,536 |
No tax benefit was recognized related to such compensation cost because of the Company's net operating losses 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 periods presented.
As of December 31, 2014, there was $3.2 million of total unrecognized compensation cost related to non-vested stock options under the 1996 and 2005 Plans. Those costs are expected to be recognized over a weighted average period of 2 years. Cash received from exercises under all share-based payment arrangements for 2014 was $0.4 million. We issue new shares of our common stock upon share option exercises.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
In applying the treasury stock method for the calculation of diluted EPS, amounts of unrecognized compensation expense and windfall tax benefits are required to be included in the assumed proceeds in the denominator of the diluted EPS calculation unless they are anti-dilutive. We reported net income for 2014 and included the dilutive effect of unrecognized compensation expense in the assumed proceeds in the denominator of the diluted EPS calculation. The shares to be issued upon the assumed conversion of the contingent consideration liability in 2014 and 2013 have been excluded from the calculation of diluted earnings per share, as their effect would have been anti-dilutive. We incurred net losses for 2013 and 2012 and, therefore, such amounts have not been included in the calculations for those periods since they would be anti-dilutive. As a result, basic and diluted EPS are the same for the 2013 and 2012 periods. We have made an accounting policy decision to calculate windfall tax benefits/shortfalls, for purposes of diluted EPS calculation, excluding the impact of deferred tax assets. This policy decision will apply when we have net income and windfall tax benefits/shortfalls are realizable.
11. Employee Savings Plan
The terms of the amended and restated Progenics Pharmaceuticals 401(k) Plan (the Amended Plan), among other things, allow eligible employees to participate in the Amended Plan by electing to contribute to the Amended Plan a percentage of their compensation to be set aside to pay their future retirement benefits. During the three years ended December 31, 2014, we matched 50% of those employee contributions that are equal to 5%-8% of compensation and are made by eligible employees to the Amended Plan (the Matching Contribution). In addition, we may also make a discretionary contribution each year on behalf of all participants who are non-highly compensated employees. We made Matching Contributions of approximately $276, $330 and $535 to the Amended Plan for 2014, 2013 and 2012, respectively. No discretionary contributions were made during those years.
12. Income Taxes
We account for income taxes using the liability method in accordance with ASC 740 Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
There is no provision or benefit for federal or state income taxes for 2014, 2013 and 2012, other than $1.0 million and $0.4 million income tax benefit in 2014 and 2013, respectively, resulting from the change in the temporary difference between carrying amounts of in-process research and development assets for financial reporting purposes and the amounts used for income tax purposes. We have completed calculations through July 15, 2014, under Internal Revenue Code Section 382, the results of which indicate that past ownership changes will limit annual utilization of NOLs in the future. Ownership changes subsequent to July 15, 2014, may further limit the future utilization of net operating loss and tax credit carry-forwards as defined by the federal and state tax codes.
Deferred tax assets and liabilities as of December 31, 2014 and 2013, consisted of the following:
| | 2014 | | | 2013 | |
Deferred tax assets: | | | | | | |
Depreciation and amortization | | $ | 5,770 | | | $ | 6,165 | |
R&E tax credit carry-forwards | | | 5,270 | | | | 5,025 | |
NYS investment tax credit carry-forwards | | | 1,090 | | | | 1,095 | |
AMT credit carry-forwards | | | 211 | | | | 211 | |
Net operating loss carry-forwards | | | 204,974 | | | | 190,263 | |
Capitalized research and development expenditures | | | 20,280 | | | | 25,231 | |
Stock compensation | | | 13,848 | | | | 13,826 | |
Other items | | | - | | | | 1,097 | |
Total gross deferred tax assets | | | 251,443 | | | | 242,913 | |
Less: Valuation allowance | | | (251,443 | ) | | | (242,913 | ) |
Deferred tax assets | | | - | | | | - | |
Deferred tax liability – long term | | | (11,332 | ) | | | (12,321 | ) |
Net deferred tax liability | | $ | (11,332 | ) | | $ | (12,321 | ) |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
We do not recognize deferred tax assets considering our history of taxable losses and the uncertainty regarding our ability to generate sufficient taxable income in the future to utilize these deferred tax assets. For 2014, 2013 and 2012, we incurred net losses for tax purposes. We recognized a full tax valuation against deferred tax assets at December 31, 2014 and 2013. In 2014 and 2013 we recognized deferred income tax liabilities of $11,332 and $12,321, respectively to reflect the net tax effects of temporary differences between the carrying amounts of in process research and development assets for financial reporting purposes and the amounts used for income tax purposes.
The following is a reconciliation of income taxes computed at the Federal statutory income tax rate to the actual effective income tax provision during 2014, 2013 and 2012:
| | 2014 | | | 2013 | | | 2012 | |
| | | | | | | | | |
U.S. Federal statutory rate | | | 34.0% | | | | (34.0)% | | | | (35.0)% | |
State income taxes, net of Federal benefit | | | 13.2 | | | | (4.9) | | | | (5.4) | |
Research and experimental tax credit | | | (15.8) | | | | (3.8) | | | | - | |
Effect of federal and state tax rate changes | | | 1.5 | | | | 8.7 | | | | - | |
Permanent differences | | | 47.9 | | | | 3.2 | | | | 4.2 | |
Change in valuation allowance | | | (109.6) | | | | 30.0 | | | | 36.2 | |
Income tax (benefit) | | | (28.8)% | | | | (0.8)% | | | | 0.0% | |
As of December 31, 2014, we had available, for tax return purposes, unused federal NOLs of approximately $557.2 million, which will expire in various years from 2018 to 2034, $18.2 million of which were generated from deductions post January 1, 2006 that, when realized, will reduce taxes payable and will increase paid-in-capital and are not reflected in our deferred tax assets above. Additionally, $11.2 million of the valuation allowance relates to NOLs attributable to excess tax deductions for equity compensation pre January 1, 2006. When realized this will also be reflected as an increase to paid-in-capital. Also, we had available, for tax return purposes, unused state NOLs of approximately $475.6 million, which will expire in various years from 2018 to 2034.
We have reviewed our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our ASC 740 Income Taxes liability, if any, or require an additional liability to be recorded. We have not, as of yet, conducted a study of our research and development credit carry-forwards. Such a study might result in an adjustment to our research and development credit carry-forwards, but until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740-10 except for uncertain tax positions acquired in connection with the Molecular Insight acquisition. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the statements of operations and comprehensive loss if an adjustment was required.
As of December 31, 2014, we are subject to federal and state income tax in the U.S. Open tax years relate to years in which unused net operating losses were generated or, if used, for which the statute of limitation for examination by taxing authorities has not expired. Our open tax years extend back to 1997. No amounts of interest or penalties were recognized in our Consolidated Statements of Operations or Consolidated Balance Sheets as of and for the years ended December 31, 2014, 2013 and 2012.
Our research and experimental (R&E) tax credit carry-forwards of approximately $5.3 million at December 31, 2014 expire in various years from 2018 to 2034.
As of December 31, 2014 and 2013, we have not recognized any liability for uncertain tax positions, because of our full valuation allowance. We will recognize interest and penalties related to these positions, should such costs be assessed. The recognition of unrecognized tax benefits would not affect our effective tax rate because the tax benefit would be offset by an increase in our valuation allowance.
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2014 and 2013.
| | 2014 | | | 2013 |
| | | | | |
Beginning uncertain tax benefits | | $ | 2,661 | | | $ | 2,661 |
Current year - increases | | | - | | | | - |
Current year - decreases | | | - | | | | - |
Settlements | | | - | | | | - |
Expired statuses | | | - | | | | - |
Ending uncertain tax benefits | | $ | 2,661 | | | $ | 2,661 |
13. Net Income (Loss) Per Share
Our basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. For 2014, we reported net income, and the computation of diluted earnings per share is based upon the weighted-average number of our common shares and dilutive effect, determined using the treasury stock method, of potential common shares outstanding including amount of unrecognized compensation expense. In periods where shares to be issued upon the assumed conversion of the contingent consideration liability have an anti-dilutive effect on the calculation of diluted earnings per share, these shares are excluded from the calculation. For 2013 and 2012, we reported net losses and, therefore, potential common shares were not included since such inclusion would have been anti-dilutive. As of December 31, 2012 our 28 shares of unvested restricted stock with non-forfeitable rights to dividends were outstanding; all such shares were vested at the end of December 31, 2013. The allocation of 2012 net losses to these participating securities pursuant to the two-class method is not material to both basic and diluted earnings per share. The calculations of net loss per share, basic and diluted, are as follows:
| | Net Income (Loss) (Numerator) | | | Weighted Average Common Shares (Denominator) | | | Per Share Amount | |
2014: | | | | | | | | | |
Basic | | $ | 4,410 | | | | 68,185 | | | $ | 0.06 | |
Dilutive effect of contingent consideration liability | | | - | | | | - | | | | | |
Dilutive effect of stock options | | | - | | | | 58 | | | | | |
Diluted | | $ | 4,410 | | | | 68,243 | | | $ | 0.06 | |
2013: | | | | | | | | | | | | |
Basic and diluted | | $ | (42,572 | ) | | | 55,798 | | | $ | (0.76 | ) |
2012: | | | | | | | | | | | | |
Basic and diluted | | $ | (35,431 | ) | | | 34,754 | | | $ | (1.02 | ) |
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(amounts in thousands, except per share amounts or as otherwise noted)
During 2014, 2013 and 2012, anti-dilutive common shares excluded from diluted per share amounts consist of the following:
| | 2014 | | | 2013 | | | 2012 |
| | Weighted Average Number | | Weighted Average Exercise Price | | | Weighted Average Number | | | Weighted Average Exercise Price | | | Weighted Average Number | | | Weighted Average Exercise Price |
Options | | | 5,036 | | $ | 10.56 | | | | 5,969 | | | $ | 11.54 | | | | 5,947 | | | $ | 12.32 |
Contingent consideration liability | | | 3,457 | | | | | | | 3,544 | | | | | | | | - | | | | |
Restricted stock | | | - | | | | | | | - | | | | | | | | 60 | | | | |
Total | | | 8,493 | | | | | | | 9,513 | | | | | | | | 6,007 | | | | |
14. Unaudited Quarterly Results (unaudited)
Summarized quarterly financial data during 2014 and 2013 are as follows:
| | 2014 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Revenues (losses) (1) | | $ | 1,815 | | | $ | 1,477 | | | $ | 41,656 | | | $ | (571 | ) |
Net income (loss) | | | (9,313 | ) | | | (11,073 | ) | | | 36,975 | | | | (12,179 | ) |
Net income (loss) per share - basic | | | (0.15 | ) | | | (0.17 | ) | | | 0.53 | | | | (0.18 | ) |
Net income (loss) per share - diluted | | | (0.15 | ) | | | (0.17 | ) | | | 0.51 | | | | (0.18 | ) |
| | 2013 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Revenues | | $ | 2,226 | | | $ | 1,801 | | | $ | 867 | | | $ | 2,968 | |
Net loss | | | (11,258 | ) | | | (12,263 | ) | | | (10,500 | ) | | | (8,551 | ) |
Net loss per share - basic and diluted | | | (0.22 | ) | | | (0.24 | ) | | | (0.17 | ) | | | (0.14 | ) |
_______________
(1) | Revenues in the first and third quarters of 2014 include $1.0 million milestone revenue from Fuji and $40.0 million milestone revenue from Salix, respectively. |
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Year ended December 31, | | Beginning Balance | | | Additions Charged to General and administrative expenses | | | Deductions Accounts Written Off During Period | | | Ending Balance |
(in thousands) | | | | | | | | | | | |
2014 | | $ | 7 | | | $ | 3 | | | $ | - | | | $ | 10 |
2013 | | $ | - | | | $ | 7 | | | $ | - | | | $ | 7 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, hereuntothereunto duly authorized.
| PROGENICS PHARMACEUTICALS, INC. |
| By: | /s/ ANGELO W. LOVALLO, JR.MARK R. BAKER |
| | AngeloMark R. Baker Chief Executive Officer and Director
(Principal Executive Officer) |
Date: March 16, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature | | Capacity | Date |
/s/ PETER J. CROWLEY | | Chairman | March 16, 2015 |
Peter J. Crowley | | | |
| | | |
/s/ PAUL J. MADDON | | Vice Chairman | March 16, 2015 |
Paul J. Maddon, M.D., Ph.D. | | | |
| | | |
/s/ MARK R. BAKER | | Chief Executive Officer and Director (Principal Executive Officer) | March 16, 2015 |
Mark R. Baker | | | |
| | | |
/s/ KAREN J. FERRANTE | | Director | March 16, 2015 |
Karen J. Ferrante, M.D. | | | |
| | | |
/s/ MICHAEL D. KISHBAUCH | | Director | March 16, 2015 |
Michael D. Kishbauch | | | |
| | | |
/s/ DAVID A. SCHEINBERG | | Director | March 16, 2015 |
David A. Scheinberg, M.D., Ph.D. | | | |
| | | |
/s/ NICOLE S. WILLIAMS | | Director | March 16, 2015 |
Nicole S. Williams | | | |
/s/ ANGELO W. Lovallo, Jr.(Duly authorized officer of the Registrant and LOVALLO, JR.
| | Vice President, Finance and Treasurer (Principal Financial and Accounting Officer)) | March 16, 2015 |
Angelo W. Lovallo, Jr. | | | |
| | | |
Date: January 17, 2014
| | |
Exhibit | | |
Number * | | Description |
3.1(1) | | Amended and Restated Certificate of Incorporation of the Registrant. |
3.2(2) | | Amended and Restated By-laws of the Registrant. |
4.1(3) | | Specimen Certificate for Common Stock, $0.0013 par value per share, of the Registrant. |
10.1(3)10.5(4) | Form of Registration Rights Agreement. |
10.2(3) | 1989 Non-Qualified Stock Option Plan‡ |
10.3(3) | 1993 Stock Option Plan, as amended‡ |
10.4(3) | 1993 Executive Stock Option Plan‡ |
10.5(4) | Amended and Restated 1996 Stock Incentive Plan‡ |
10.6.3(5) | | Amended 2005 Stock Incentive Plan ‡ |
10.6.4(6) | | Form of Non-Qualified Stock Option Award Agreement ‡ |
10.6.5(6) | | Form of Restricted Stock Award Agreement ‡ |
10.7(7) | | Form of Indemnification Agreement‡ |
10.8(8)10.8.2(8) | Employment Agreement, dated December 31, 2007, between the Registrant and Dr. Paul J. Maddon‡ |
10.8.1(9) | First Amendment to Employment Agreement, dated March 31, 2011, between the Registrant and Dr. Paul J. Maddon‡ |
10.8.2(10) | Retirement Agreement, dated as of March 14, 2012, between the Registrant and Dr. Paul J. Maddon‡ |
10.9(3) | | Letter dated August 25, 1994 between the Registrant and Dr. Robert J. Israel‡ |
10.16(11)10.16(9)† | | Development and License Agreement, dated April 30, 1999, between Protein Design Labs, Inc. and the Registrant. |
10.16.1(12)10.16.1(10) | | Letter Agreement, dated November 24, 2003, relating to the Development and License Agreement between Protein Design Labs, Inc. and the Registrant. |
10.18(13)10.19(11) † | Director Stock Option Plan‡ |
10.19(14)† | Exclusive SublicenseSub-license Agreement, dated September 21, 2001, between the Registrant and UR Labs, Inc. |
10.19.1(15)10.19.1(12) | | Amendment to Exclusive SublicenseSub-license Agreement, dated September 21, 2001, between the Registrant and UR Labs, Inc. |
10.21.1(16)10.21.1(13) | | Amended and Restated Agreement of Lease, dated October 28, 2009, between BMR-Landmark at Eastview LLC and the Registrant. |
10.23 | | Information concerning compensation of the Registrant's non-employee directors is included in the Registrant's proxy material for its 20122013 Annual Meeting of Stockholders and its Current Report on Form 8-K filed on September 12, 2013 and is incorporated herein by reference.‡ |
10.25(17)10.25(14) † | | Option and License Agreement, dated May 8, 1985, by and between the University of Chicago and UR Labs, Inc., as amended by (i) Amendment to Option and License Agreement, dated September 17, 1987, by and between the University of Chicago and UR Labs, Inc., and (ii) Second Amendment to Option and License Agreement, dated March 3, 1989, by and among the University of Chicago, ARCH Development Corporation and UR Labs, Inc., and (iii) Letter Agreement Related to Progenics' Relistor In-License dated, December 22, 2005, by and among the University of Chicago, acting on behalf of itself and ARCH Development Corporation, the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Wyeth, acting through its Wyeth Pharmaceuticals Division. |
10.26(18)10.26(15) | | Membership Interest Purchase Agreement, dated April 20, 2006, between the Registrant Inc. and Cytogen Corporation. |
10.27(18)10.27(15) † | | Amended and Restated PSMA/PSMP License Agreement, dated April 20, 2006, by and among the Registrant, Cytogen Corporation and PSMA Development Company LLC. |
10.28(19)10.29(16) † | Consulting Agreement, dated May 1, 1995, between Active Biotherapies, Inc. and Dr. David A. Scheinberg, M.D., Ph.D., as amended on June 13, 1995, as assigned to the Registrant, and as amended on January 1, 2001‡ |
10.29(20) † | License Agreement, dated as of October 16, 2008, by and among Ono Pharmaceutical Co., Ltd. and the Registrant. |
10.30(20) † | Partial Termination and License Agreement, dated October 16, 2008, by and among Wyeth, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc. and the Registrant and Progenics Pharmaceuticals Nevada, Inc. |
10.31(20) † | Consent, Acknowledgment and Agreement, dated as of October 16, 2008, by and among Wyeth, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc., the Registrant and Ono Pharmaceutical Co., Ltd. |
10.32(20) † | | 2008 Agreement Related to Progenics' MNTX In-License, dated October 16, 2008, by and among the University of Chicago, acting on behalf of itself and ARCH Development Corporation, the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Ono Pharmaceutical Co., Ltd. |
10.33(21) † | | Termination and Transition Agreement, effective as of October 1, 2009, by and among Wyeth, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals, Inc., Wyeth-Ayerst Lederle, Inc., and AHP Manufacturing B.V., and the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Excelsior Life Sciences Ireland Limited. |
10.33.1(22) † | | First Amendment to Termination and Transition Agreement, effective as of October 1, 2010, by and among Wyeth LLC, acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals LLC, Wyeth-Ayerst Lederle LLC, and AHP Manufacturing B.V., and the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Excelsior Life Sciences Ireland Limited. |
10.34(23)10.34(17) † | | Collaboration Agreement, effective June 14, 2005, by and between Seattle Genetics, Inc. and PSMA Development Company, LLC. |
10.37(9)10.37(18) † | | License Agreement dated as of February 3, 2011, by and between Salix Pharmaceuticals, Inc., the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Excelsior Life Sciences Ireland Limited. |
10.37.1(9)10.37.1(18) † | | 2010 Agreement Related to Progenics' MNTX In-License, dated February 3, 2011, by and among the University of Chicago, acting on behalf of itself and ARCH Development Corporation, the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Salix Pharmaceuticals, Inc. |
10.38(19) † | | Stock Purchase and Sale Agreement, dated January 16, 2013, by and between Molecular Insight Pharmaceuticals, Inc., its Stockholders, the Registrant, and Highland Capital Management, L.P., as Stockholders Representative. |
10.39(19) † | | License Agreement, dated September 1, 2012, by and between FUJIFILM RI Pharma Co., Ltd. and Molecular Insight Pharmaceuticals, Inc. |
10.40(20) † | | License Agreement, dated May 4, 2012, between Molecular Insight Pharmaceuticals, Inc., the University of Zurich and the Paul Scherrer Institute. |
10.41(21) | | License Agreement, dated as of December 15, 2000, between Molecular Insight Pharmaceuticals, Inc. and The Board of Governors of the University of Western Ontario. |
10.42(21) | | License Agreement, dated as of November 3, 2006, between Molecular Insight Pharmaceuticals, Inc. and Novartis Pharma AG, together with First Amendment, dated January 4, 2007, thereto. |
10.43(22) | | Controlled Equity OfferingSM Sales Agreement dated as of January 23, 2014, by and between the Registrant and Cantor Fitzgerald & Co. |
10.44(23) | | Agreement, dated September 19, 2014, between the Registrant and Dr. Hagop Youssoufian.‡ |
10.45(17) † | | Collaboration Agreement, effective February 21, 2001, by and between Abgenix, Inc. and PSMA Development Company, LLC. |
12.1 | | Statement re computation of ratio of earnings (loss) to combined fixed charges and preferred stock dividends. |
21.1 | | Subsidiaries of the Registrant. |
23.1 | | Consent of PricewaterhouseCoopers LLP. |
23.223.1 | | Consent of Ernst & Young LLP. |
31.1 | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.2 | | Certification of Angelo W. Lovallo, Jr., Senior Executive Director, Financial Reporting & Treasurer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.3 | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.4 | | Certification of Angelo W. Lovallo, Jr., Vice President, Finance & Treasurer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.5** | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.6** | | Certification of Angelo W. Lovallo, Jr., Vice President, Finance & Treasurer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
32.1 | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | | Certification of Angelo W. Lovallo, Jr., Senior Executive Director, Financial Reporting & Treasurer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.3 | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.4 | | Certification of Angelo W. Lovallo, Jr., Vice President, Finance and& Treasurer (Principal Financial and Accounting Officer) of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.5** | | Certification of Mark R. Baker, Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.6** | | Certification of Angelo W. Lovallo, Jr., Vice President, Finance and Treasurer (Principal Financial and Accounting Officer) of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | Interactive Data File |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Document |
| | |
* | | Exhibits footnoted as previously filed have been filed as an exhibit to the document of the Registrant or other registrant referenced in the footnote below, and are incorporated by reference herein. Exhibits not so footnoted and not filed herewith were filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC March 15, 2012, or in the case of Exhibits 31.3, 31.4, 32.3 and 32.4, with the Registrant's Amendment No. 1 on Form 10-K/A filed April 30, 2013. |
| | |
** | | Filed herewith. |
| | |
(1) | | Previously filed in QuarterlyCurrent Report on Form 10-Q for the quarter ended8-K filed on June 30, 2011.13, 2013. |
(2) | | Previously filed in Current Report on Form 8-K filed on March 16, 2012. |
(3) | | Previously filed in Registration Statement on Form S-1, Commission File No. 333-13627. |
(4) | | Previously filed in Registration Statement on Form S-8, Commission File No. 333-120508. |
(5) | | Previously filed in Current Report on Form 8-K filed on November 28, 2012.June 18, 2014. |
(6) | | Previously filed in Current Report on Form 8-K filed on July 8, 2008. |
(7) | | Previously filed in Quarterly Report on Form 10-Q for the quarterly period endingquarter ended March 31, 2007 |
(8) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2007. |
(9) | | Previously filed in Quarterly Report on Form 10-Q for the quarter ended March 31, 2011. |
(10)(8) | | Previously filed in Quarterly Report on Form 10-Q for the quarter ended March 31, 2012. |
(11)(9) | | Previously filed in Quarterly Report on Form 10-Q for the quarterly periodquarter ended June 30, 1999. |
(12)(10) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2004. |
(13)(11) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 1999.2002. |
(12) | | Previously filed in Current Report on Form 8-K filed on September 20, 2004. |
(13) | | Previously filed in Current Report on Form 8-K filed on November 28, 2012. |
(14) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2002.2005. |
(15) | | Previously filed in Current Report on Form 8-K filed on September 20, 2004. |
(16) | | Previously filed in Current Report on Form 8-K filed on November 28, 2012. |
(17) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2005. |
(18) | | Previously filed in Quarterly Report on Form 10-Q for the quarterly period endingquarter ended June 30, 2006.2006 |
(19) | | Previously filed in Annual Report on Form 10-K/A for the year ended December 31, 2006. |
(20)(16) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2008. |
(21) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2009. |
(22) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2010. |
(23)(17) | | Previously filed in Amendment No. 2 to Annual Report on Form 10-K/A for the year ended December 31, 2009. |
(18) | | Previously filed in Quarterly Report on Form 10-Q for the quarter ended March 31, 2011. |
(19) | | Previously filed in Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. |
(20) | | Previously filed in Annual Report on Form 10-K for the year ended December 31, 2013. |
(21) | | Previously filed in Registration Statement on Form S-1, Commission File No. 333-129570 filed by Molecular Insight Pharmaceuticals, Inc. |
(22) | | Previously filed in Registration Statement on Form S-3, Commission File No. 333-193521. |
(23) | | Previously filed in Quarterly Report on Form 10-Q for the quarter ended September 30, 2014. |
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| | |
† | | Confidential treatment granted as to certain portions omitted and filed separately with the Commission. |
‡ | | Management contract or compensatory plan or arrangement. |
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