Progenics is a biopharmaceutical company focusing on the development and commercialization of innovative products to address the unmet medical needs of patients with debilitating conditions and life-threatening diseases. We commenced principal operations in late 1988 and since that time have been engaged primarily in research and development efforts, development of our manufacturing capabilities, establishment of corporate collaborations and raising capital. In order to commercialize the principal products that we have under development, we will need to address a number of technological challenges and comply with comprehensive regulatory requirements. Accordingly, it is not possible to predict the amount of funds that will be required or the length of time that will pass before we receive revenues from sales of any of these products. To date, product sales have consisted solely of limited revenues from the sale of research reagents. We expect that sales of research reagents in the future will not significantly increase over current levels. Our other sources of revenues through December 31, 2002 have been payments received under our collaboration agreements, research grants and contracts related to our cancer and HIV programs and interest income.
To date, a majority of our expenditures have been for research and development activities. We expect that our research and development expenses will increase significantly as our programs progress and we make filings for related regulatory approvals. With the exception of the years ended December 31, 1997 and 1998, we have had recurring losses and had, at December 31, 2002, an accumulated deficit of approximately $46,308,000. We will require additional funds to complete the development of our products, to fund the cost of clinical trials and to fund operating losses that are expected to continue for the foreseeable future. We do not expect our products under development to be commercialized in the near future.
We recognized $5,298,000 and $199,000 of revenue for research and development services performed for the PSMA Development Company, LLC, our joint venture with Cytogen Corporation, (the “JV”) during 2002 and 2001, respectively. We have a 50% interest in the JV. We were required to fund the first $3.0 million of research and development costs and such amounts were recorded as capital contributions to the JV. During the fourth quarter of 2001, we surpassed the $3.0 million threshold, at which time we began recognizing revenue for services and costs being provided to and paid by the JV. The level of future revenues from the JV will be dependent upon the extent of research and development services requested by the JV and the future financial position of the JV. We provide services to the JV under a Services Agreement. As of March 31, 2002, and through December 31, 2002, the Company was performing services for the JV under a month-to-month extension of the Services Agreement. At December 31, 2002, and through March 28, 2003, the Members were negotiating the terms of a new Services Agreement. Accordingly, future revenue will also be dependent upon the extension, if any, and terms of an amended Services Agreement. The level of commitment by Progenics and Cytogen (collectively, the “Members”) to fund the JV is based on an annual budget that is approved by both of the Members. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002.
Other contract research and development revenue declined from $4,916,000 in 2001 to $194,000 in 2002 primarily due to a decrease in funding received from Bristol-Myers Squibb Company (“BMS”) after we and BMS mutually terminated our collaboration agreement in May 2001. We received $3,673,000 from BMS in 2001 under the agreement and $0 in 2002. Revenues from contract research and development performed for other collaborators decreased from $1,243,000 in 2001 to $194,000 in 2002 as our commitments for such work were completed.
Revenues from research grants increased from $3,725,000 in 2001 to $4,544,000 in 2002. The increase resulted from the funding of a greater number of grants in 2002. Sales of research reagents increased from $43,000 in 2001 to $49,000 in 2002 resulting from increased orders for such reagents during 2002.
Back to Contents
Expenses:
Research and development expenses include scientific labor, supplies, facility costs, clinical trial costs, patent costs, and product manufacturing costs. In late 2001, we in-licensed MNTX (methylnaltrexone), an investigational drug in late-stage clinical development designed to reverse certain side effects of opiod pain medications. The product has entered Phase III clinical trials and has become our lead product. A major portion of our spending has been and will continue to be concentrated on this product. Research and development expenses increased from $14,501,000 in 2001 to $23,761,000 in 2002. The increase was principally due to (i) an increase in headcount from 50 in 2001 to 70 in 2002 in the research and development, manufacturing and medical departments, (ii) an increase in manufacturing supplies (particularly for MNTX), (iii) additional rent for new laboratory space as the we expanded our programs to incl ude MNTX and, (iv) increased our spending on PSMA and HIV research programs.
General and administrative expenses include executive and administrative labor, professional fees, office rent and supplies. General and administrative expenses remained unchanged at $6,499,000 in 2001 and $6,484,000 in 2002. The minimal decrease was principally due to a decrease in professional fees offset by an increase in operating expenses such as rent.
Loss in joint venture increased from $2,225,000 in 2001 to $2,886,000 in 2002. The increase was primarily due to the growth and acceleration of the joint venture’s development programs to develop in vivo immunotherapies for prostate cancer and the costs of licensing transactions. We recognize our share of the JV’s loss under the terms of the JV with Cytogen Corporation. The increase in the JV loss was due to an increase in the headcount assigned to the PSMA project and the related cost of supplies. Additionally, prior to reaching the $3.0 million thresehold, we recognized 100% of the joint venture’s research and development losses; that percentage was reduced to 50% subsequent to reaching that threshold in December 2001. The level of future losses from the JV will be dependent upon the extent of research and development costs expended by the JV, the future financial position of the JV and the extension, if any, and terms of an amended Services Agreement. The level of commitment by Progenics and Cytogen to fund the JV is based on a annual budget that is approved by the Members. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002.
Depreciation and amortization increased from $707,000 in 2001 to $1,049,000 in 2002 as we purchased capital assets and made leasehold improvements in 2002 to accommodate expansion.
Other income (expense):
Interest income decreased from $3,348,000 in 2001 to $1,708,000 in 2002 as cash available for investing decreased and interest rates declined year over year. During 2001, we received a non-recurring payment of $9,852,000 from BMS in connection with the termination of the BMS Agreement (see above). As a result of the termination of the BMS Agreement, we will receive no additional payments from BMS. During 2002, we received a $1,600,000 payment form an insurance settlement related to a heat excursion in our storage facility.
Our net loss was $1,898,000 in 2001 compared to a net loss of $20,789,000 in 2002.
Years Ended December 31, 2000 and 2001
Revenues:
We recognized $0 of revenue for research and development services performed for the PSMA Development Company, LLC, our joint venture with Cytogen Corporation, (the “JV”) during 2000 and $199,000 in 2001. We were required to fund the first $3.0 million of research and development costs and such amounts were recorded as capital contributions to the JV. That $3.0 million threshold was reached in the fourth quarter of 2001. Other contract research and development revenue declined from $7,941,000 in 2000 to $4,916,000 in 2001 including funding received from Bristol-Myers Squibb Company (“BMS”) after the Company and BMS mutually terminated their collaboration agreement in May 2001. The Company received $6,213,000 from BMS in 2000 under the agreement and $3,673,000 in 2001.
40
Back to Contents
Expenses:
Research and development expenses increased from $13,075,000 in 2000 to $14,501,000 in 2001. The increase was principally due to an increase in headcount, related laboratory supplies and additional rent for new laboratory space as we expanded our research and development programs to include MNTX (methylnaltrexone) in October 2001.
General and administrative expenses increased from $5,042,000 in 2000 to 6,499,000 in 2001. The increase was principally due to an increase in legal expenses related to our intellectual property filings and prosecutions, headcount and additional rent for new office space to accommodate growth.
Loss in joint venture increased from $945,000 in 2000 to $2,225,000 in 2001. The increase was primarily due to the growth and acceleration of the joint venture’s development programs to develop in vivo immunotherapies for prostate cancer and the costs of licensing transactions.
Other income (expense):
Interest income decreased from $4,127,000 in 2000 to $3,348,000 in 2001 as cash available for investing remained relatively constant and interest rates decreased year over year.
Interest expense decreased from $95,000 in 2000 to $49,000 in 2001. The decrease was principally due to the recognition of interest expense as we discounted future capital contributions to the joint venture that decreased in 2001 and reduced capital lease obligations in 2001. We also received a non-recurring payment of approximately $9,852,000 from BMS in connection with the termination of the BMS Agreement. As a result of the termination of the BMS Agreement, we will receive no additional payments from BMS.
Our net loss was $5,917,000 in 2000 compared to a net loss of $1,898,000 in 2001.
Liquidity and Capital Resources
We have funded our operations since inception primarily through private placements of equity securities, loans that were subsequently converted into equity securities, a line of credit that was repaid and terminated, payments received under collaboration agreements, such as those with BMS and Roche, two public offerings of common stock, funding under government research grants and contracts, interest on investments, and the proceeds from the exercise of outstanding options and warrants. In May 2001, we and BMS mutually agreed to terminate our cancer vaccine collaborative development agreement, pursuant to which we regained all rights to the products and received a non-recurring payment of approximately $9,852,000 from BMS. As a result of the termination of the BMS Agreement, we will receive no additional payments from BMS. In 2002, we received $1,600,000 in full settlement of an insurance claim.
At December 31, 2002, we had cash, cash equivalents and marketable securities, including non-current portion, totaling approximately $42.4 million compared with approximately $61.9 million at December 31, 2001. The cash used in operations for the year ended December 31, 2002 was $17.3 million compared with $2.1 million of cash provided by operations for the same period in 2001. The cash used in operations for the year ended December 31, 2002 resulted primarily from a net loss of $20.8 million partially offset by depreciation and amortization of $2.3 million.
The cash provided by investing activities for the year ended December 31, 2002 was $14.5 million compared with $2.1 million of cash provided by investing activities for the same period in 2001. The cash provided by investing activities for the year ended December 31, 2002 resulted primarily from the sale of $29.9 million of marketable securities offset by the purchase of $13.1 of marketable securities and the purchase of $2.2 million of fixed assets including capital equipment and leasehold improvements as we acquired and built out additional research and development space. We expect to spend about the same amount during 2003 to install a new bioreactor. Actual cash expended may decrease in 2003 as we are negotiating a lease line of credit to finance certain capital expenditures.
41
Back to Contents
Cash provided by financing activities for the year ended December 31, 2002 was $1.4 million as compared with $1.0 million of cash provided by financing activities for the same period in 2001. The cash provided by financing activities for the year ended December 31, 2002 reflects the exercise of stock options under the our Employee Stock Option Plans, the exercise of warrants and the sale of common stock under the Employee Stock Purchase Plans. During 2003, we expect that cash received from exercises under the above plans will increase due to increased headcount.
We are required to make capital contributions to fund 50% of the current and future spending on the PSMA projects under the terms of the JV. Such amount was $2.3 million during 2002. The level of commitment by Progenics and Cytogen, to fund the JV is based on a budget that is approved by both parties. That budget is intended to be sufficient to fund research and development projects for the current year. The budget must also consider the ability of the Members to fund the JV. During the first quarter of 2003, each Member contributed $1.5 million to the JV. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002.
We provide services to the JV under a Services Agreement. As of March 31, 2002, and through December 31, 2002, the Company was performing services for the JV under a month-to-month extension of the Services Agreement. At December 31, 2002, and through March 28, 2003, the Members were negotiating the terms of a new Services Agreement. For the year ended December 31, 2002, we recognized approximately $5,298,000 of contract research and development revenue for services performed on behalf of the JV. A portion of these revenues is reimbursement for costs expended to outside parties. Beginning in 2003, all costs to outside parties will be paid directly by the JV. The level of future revenues from the JV will be dependent upon the extent of research and development services requested by the JV, the future financial position of the JV and the extension, if any, and terms of an amended Services Agreement.
Our total expenses for research and development from inception through December 31, 2002 have been approximately $94.8 million. We currently have major research and development programs investigating cancer, symptom management and supportive care, and human immunodeficiency virus-related diseases (“HIV”), for which we are or have licensed technology and collaborated with other pharmaceutical and biotechnology companies as well as academic institutions. In addition, we are conducting several smaller research projects in the areas of virology and cancer. For various reasons, many of which are outside of our control, including the early stage of our programs, the timing and results of our clinical trials and our dependence on third parties, we cannot estimate the total remaining costs to be incurred and timing to complete our research and development programs. However, we expect to increase our spending on MNTX to approximately $15.0 million in 2003 for purchases of clinical supplies and the conduct of clinical trials. Spending on other programs is expected to remain relatively constant in 2003. For the years ended December 31, 2000, 2001 and 2002, research and development costs incurred were as follows:
| | | Years Ended December 31,
| |
| | | 2000 | | 2001 | | 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | (in $ million) | |
| Cancer | | $ | 5.7 | | $ | 4.2 | | $ | 7.0 | |
| MNTX | | | | | | | | | 7.0 | |
| HIV | | | 6.9 | | | 9.8 | | | 7.3 | |
| Other programs | | | .5 | | | .5 | | | 2.5 | |
| | |
|
| |
|
| |
|
| |
| Total | | $ | 13.1 | | $ | 14.5 | | $ | 23.8 | |
| | |
|
| |
|
| |
|
| |
We have no off-balance sheet arrangements and do not guarantee the obligations of any other entity.
42
Back to Contents
We believe that our existing capital resources should be sufficient to fund operations beyond one year. However, this is a forward-looking statement based on our current operating plan and the assumptions on which it relies. There could be changes that would consume our assets before such time. We will require substantial funds to conduct research and development activities, preclinical studies, clinical trials and other activities relating to the commercialization of any potential products. In addition, our cash requirements may vary materially from those now planned because of results of research and development and product testing, changes in existing relationships with, 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. We have no committed external sources of capital and, as discussed above, expect no significant product revenues for a number of years as it will take at least that much time, if ever, to bring our products to the commercial marketing stage. We may seek additional financing, such as through future offerings of equity or debt securities or agreements with corporate partners and collaborators with respect to the development of our technology, to fund future operations. We cannot assure you, however, that we will be able to obtain additional funds on acceptable terms, if at all.
The following table summarizes our contractual obligations as of December 31, 2002, for future operating lease payments and payments for licensing, corporate collaboration and service agreements:
| | | | | | | Payments Due by Period
| |
| | | Total | | Less than one year | | 1 to 3 years | | 4 to 5 years | | Greater than 5 years | |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (in $ millions) | |
| Operating leases | | $ | 2.0 | | $ | 0.8 | | $ | 1.2 | | | | | | | |
| Licensing, collaboration and service agreements (1) | | | 21.9 | | | 4.8 | | | 4.5 | | $ | 5.3 | | | 7.3 | |
(1) Assumes attainment of milestones covered under each agreement.Critical Accounting Policies
Revenue Recognition
We recognize revenue from contract research and development as we perform services, provided a contractual agreement exists, the contract price is fixed or determinable, and our collection of the resulting receivable is probable. In situations where we receive payment in advance of the performance of services, these amounts are deferred and recognized as revenue as we perform the related services. Non-refundable fees, including payments we receive for services, up-front licensing fees and milestone payments are recognized as revenue based on the percentage of costs incurred to date, estimated costs to complete and total expected contract revenue. However, the revenue we recognize is limited to the amount of non-refundable fees received. Non-refundable fees that we receive in consideration for granting collaborators the right to license product candidates developed by us are recognized as revenue on a straight-line basis over the term of the underlying agreements. With regard to our revenues from non-refundable fees, changes in estimates of our costs to complete could have a material impact on the revenues we recognize.
In connection with the formation of the equally-owned JV, we have funded the first $3.0 million of research and development costs incurred on behalf of the JV. Prior to reaching $3.0 million of such costs, we recognized reimbursements on a net basis and did not recognize any revenue from the JV. Subsequent to having funded $3.0 million of research and development costs, in the fourth quarter of 2001, both Members are required to fund the JV to support ongoing research and development efforts conducted by us on behalf of the JV. Accordingly, following $3.0 million of funding, we, acting as a principal, recognize payments for research and development as revenue. We are the primary obligor responsible for providing the service, by conducting research and development, desired by the JV, including the acceptability of the research and development services and we have established the amounts we will be reimbursed for the services by selecting the subcontractors and suppliers we employ in conducting the research and development for the JV. Changes in those factors may have a significant impact on the revenue that we recognize in the future.
43
Back to Contents
For the year ended December 31, 2002, we recognized approximately $5,298,000 of contract research and development revenue for services performed on behalf of the JV. A portion of these revenues was reimbursement for costs expended to outside parties. Beginning in 2003, all costs to outside parties will be paid directly by the JV. The level of future revenues from the JV will be dependent upon the extent of research and development services requested by the JV, the future financial position of the JV and the extension, if any, and terms of an amended Services Agreement. The level of commitment by Progenics and Cytogen to fund the JV is based on an annual budget that is approved by both parties. That budget is intended to be sufficient to fund research and development projects for 2003. The budget must also consider the ability of the Members to fund the JV. During the first quarter of 2003, each Member contributed $1.5 million to the JV. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002.
Clinical Trial Expenses
Clinical trial expenses, which are included in research and development expenses, represent obligations resulting from our contracts with various clinical research organizations in connection with conducting clinical trials for our product candidates. Such costs are expensed based on the expected total number of patients in the trial, the rate at which the patients enter the trial and the period over which the clinical research organizations are expected to provide services. We believe that this method best approximates the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual results differ from our estimates.
Impact of the Adoption of Recently Issued Accounting Standards
In June 2002, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 146 (“FAS 146”) “Accounting for Costs Associated with Exit or Disposal Activities”. FAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. rather than on the date of an entity’s commitment to an exit plan and establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement shall be effective for exit or disposal activities initiated after December 31, 2002. The provisions of Issue 94-3 shall continue to apply for an exit a ctivity initiated under an exit plan that met the criteria of Issue 94-3 prior to this Statement’s initial application.
On December 31, 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123” (“FAS 148”). FAS 148 provides several transition provisions that may be used upon adoption of the accounting provisions of FAS 123. FAS 148 also mandates certain new disclosures, whether or not FAS 123 is adopted, that are incremental to those required by FAS 123. Those disclosures must be made in both interim and annual financial statements. The transition and annual disclosure provisions of FAS 148 are effective for fiscal years ending after December 15, 2002. The new interim disclosure provisions are effective for the first interim period beginning after December 15, 2002.
On November 21, 2002, the EITF finalized Issue No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”) which addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. EITF 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003.
44
Back to Contents
On November 25, 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance incorporated without change from Interpretation 34 continues to be required for financial statements for fiscal years ending after June 15, 1981—the effective date of Interpretation 34.
Management believes that the future adoption of these accounting standards will not have a material impact on the Company’s financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2001, the Company did not hold any market risk sensitive instruments.
Item 8. Financial Statements and Supplementary Data
See page F-1, “Index to Financial Statements.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
45
Back to Contents
PART III
Item 10. Directors and Executive Officers of the Registrant
This information will be contained in the Company’s definitive Proxy Statement with respect to the Company’s Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, and is hereby incorporated by reference thereto.
Item 11. Executive Compensation
This information will be contained in the Company’s definitive Proxy Statement with respect to the Company’s Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, and is hereby incorporated by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information will be contained in the Company’s definitive Proxy Statement with respect to the Company’s Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, and is hereby incorporated by reference thereto.
Item 13. Certain Relationships and Related Transactions
This information will be contained in the Company’s definitive Proxy Statement with respect to the Company’s Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, and is hereby incorporated by reference thereto.
Item 14. Controls and Procedures
(a) It is the Chief Executive Officer’s and the Vice President, Finance and Operations’ (the Company’s Principal Financial Officer) responsibility to ensure that the Company maintains disclosure controls and procedures (as defined in rule 13a-14c promulgated under the Securities Exchange Act of 1934, as amended) designed to provide reasonable assurances that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is identified and communicated to senior management on a timely basis. Our disclosure controls and procedures include periodic meetings of a Disclosure Committee and management meetings to ensure communication of reportable events, receipt of ongoing advice from internal and external legal counsel and outside auditors on new legislation and rules and updating, if required, the Company’s disclosure controls and procedures. Within 90 days prior to the date of this report, pursuant to Exchange Act Rule 13a-15 the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Vice President, Finance and Operations, and the Disclosure Committee of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Vice President, Finance and Operations have concluded that the Company’s disclosure controls and procedures are effective.
(b) There have been no significant changes in the Company’s internal disclosure controls and procedures or in other factors that could significantly affect these controls subsequent to the date of the evaluation described in the preceding paragraph.
46
Back to Contents
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
The following documents or the portions thereof indicated are filed as a part of this Report.
a) Documents filed as part of this Report:
1. Report of Independent Accountants
2. Financial Statements of Progenics Pharmaceuticals, Inc.
Balance Sheets at December 31, 2001 and 2002
Statements of Operations for the years ended December 31, 2000, 2001 and 2002
Statements of Stockholders’ Equity and Comprehensive Loss for the years ended December 31, 2000, 2001 and 2002
Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002
Notes to the Financial Statements
3. Financial Statements of PSMA Development Company LLC
Balance Sheets at December 31, 2001 and 2002
Statements of Operations for the period from June 15, 1999 (inception) to December 31, 1999, the years ended December 31, 2000, 2001 and 2002 and the cumulative period from June 15, 1999 (inception) to December 31, 2002
Statements of Stockholders’ (Deficit) Equity for the period from June 15, 1999 (inception) to December 31, 2001, including the period from June 15, 1999 (inception) to December 31, 1999 and the years ended December 31, 2000, 2001 and 2002
Statements of Cash Flows for the period from June 15, 1999 (inception) to December 31, 1999, the years ended December 31, 2000, 2001 and 2002, and the cumulative period from June 15, 1999 (inception) to December 31, 2002
Notes to Financial Statements
b) Reports on Form 8-K
On December 20, 2002 we filed a Current Report on Form 8-K in which Item 7 exhibits were filed and an Item 9 Regulation FD disclosure was made and no financial statements were filed.
c) Item 601 Exhibits
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated by reference.
47
Back to Contents
Progenics Pharmaceuticals, Inc.
Index to Financial Statements
| | Page |
| |
|
Progenics Pharmaceuticals, Inc. | |
| | |
| |
| | |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
PSMA Development Company L.L.C. (a development stage enterprise) | |
| | |
| |
| | |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
F-1
Back to Index to Financial Statements
Report of Independent Accountants
To the Board of Directors and Stockholders of
Progenics Pharmaceuticals, Inc.:
In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders’ equity and comprehensive loss and of cash flows present fairly, in all material respects, the financial position of Progenics Pharmaceuticals, Inc. (the “Company”) at December 31, 2001 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
| | PricewaterhouseCoopers LLP |
New York, New York
February 14, 2003, except for Note 8,
as to which the date is March 28, 2003
F-2
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Balance Sheets
| | | December 31, | |
| | |
| |
| | | 2001 | | 2002 | |
| | |
|
| |
|
| |
Assets | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 10,759,636 | | $ | 9,446,982 | |
| Marketable securities | | | 30,523,239 | | | 27,753,984 | |
| Accounts receivable | | | 378,020 | | | 334,006 | |
| Other current assets | | | 2,086,585 | | | 1,573,815 | |
| | |
|
| |
|
| |
Total current assets | | | 43,747,480 | | | 39,108,787 | |
| | |
|
| |
|
| |
| Marketable securities | | | 20,594,274 | | | 5,172,808 | |
| Fixed assets, at cost, net of accumulated depreciation and amortization | | | 2,560,199 | | | 3,705,531 | |
| Investment in joint venture | | | 579,296 | | | | |
| Restricted cash | | | | | | 130,795 | |
| | |
|
| |
|
| |
Total assets | | $ | 67,481,249 | | $ | 48,117,921 | |
| | |
|
| |
|
| |
Liabilities and Stockholders’ Equity | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,597,089 | | $ | 2,900,028 | |
| Amount due to joint venture | | | 500,000 | | | | |
| | |
|
| |
|
| |
Total current liabilities | | | 3,097,089 | | | 2,900,028 | |
| Deferred lease liability | | | 38,797 | | | 71,264 | |
| | |
|
| |
|
| |
Total liabilities | | | 3,135,886 | | | 2,971,292 | |
| | |
|
| |
|
| |
| Commitments and contingencies (Note 7) | | | | | | | |
| Stockholders’ equity: | | | | | | | |
| Preferred stock, $.001 par value; 20,000,000 shares authorized; issued and outstanding - none | | | | | | | |
| Common stock, $.0013 par value; 40,000,000 shares authorized; shares issued and outstanding 12,429,916 in 2001 and 12,681,585 in 2002 | | | 16,159 | | | 16,486 | |
| Additional paid-in capital | | | 89,664,075 | | | 91,332,106 | |
| Unearned compensation | | | (23,150 | ) | | | |
| Accumulated deficit | | | (25,518,834 | ) | | (46,307,642 | ) |
| Accumulated other comprehensive income | | | 207,113 | | | 105,679 | |
| | |
|
| |
|
| |
Total stockholders’ equity | | | 64,345,363 | | | 45,146,629 | |
| | |
|
| |
|
| |
Total liabilities and stockholders’ equity | | $ | 67,481,249 | | $ | 48,117,921 | |
| | |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-3
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Statements of Operations
| | | Years Ended December 31, | |
| | |
| |
| | | 2000 | | 2001 | | 2002 | |
| | |
|
| |
|
| |
|
| |
Revenues: | | | | | | | | | | |
| Contract research and development from joint venture | | $ | | | $ | 199,123 | | $ | 5,298,293 | |
| Other contract research and development | | | 7,941,185 | | | 4,916,341 | | | 193,734 | |
| Research grants | | | 1,835,564 | | | 3,725,375 | | | 4,543,505 | |
| Product sales | | | 45,524 | | | 42,800 | | | 49,030 | |
| | |
|
| |
|
| |
|
| |
Total revenues | | | 9,822,273 | | | 8,883,639 | | | 10,084,562 | |
| | |
|
| |
|
| |
|
| |
Expenses: | | | | | | | | | | |
| Research and development | | | 13,074,815 | | | 14,501,400 | | | 23,760,544 | |
| General and administrative | | | 5,042,485 | | | 6,499,153 | | | 6,484,001 | |
| Loss in Joint Venture | | | 945,519 | | | 2,225,454 | | | 2,886,423 | |
| Depreciation and amortization | | | 708,874 | | | 707,382 | | | 1,048,960 | |
| | |
|
| |
|
| |
|
| |
Total expenses | | | 19,771,693 | | | 23,933,389 | | | 34,179,928 | |
| | |
|
| |
|
| |
|
| |
Operating loss | | | (9,949,420 | ) | | (15,049,750 | ) | | (24,095,366 | ) |
| | |
|
| |
|
| |
|
| |
Other income (expenses): | | | | | | | | | | |
| Interest income | | | 4,127,156 | | | 3,348,401 | | | 1,708,253 | |
| Interest expense | | | (94,892 | ) | | (48,816 | ) | | (1,695 | ) |
| Payment from collaborator | | | | | | 9,852,015 | | | | |
| Payment from insurance settlement | | | | | | | | | 1,600,000 | |
| | |
|
| |
|
| |
|
| |
Total other income | | | 4,032,264 | | | 13,151,600 | | | 3,306,558 | |
| | |
|
| |
|
| |
|
| |
Net loss | | $ | (5,917,156 | ) | $ | (1,898,150 | ) | $ | (20,788,808 | ) |
| | |
|
| |
|
| |
|
| |
| Net loss per share - basic and diluted | | $ | (0.49 | ) | $ | (0.15 | ) | $ | (1.66 | ) |
| | |
|
| |
|
| |
|
| |
| Weighted-average shares - basic and diluted | | | 12,137,653 | | | 12,376,056 | | | 12,550,798 | |
| | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-4
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Statements of Stockholders’ Equity and Comprehensive Loss
For the years ended December 31, 2000, 2001 and 2002
| | | Common Stock | | Additional
Paid- in
Capital | | Unearned Compensation | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income | | Total | | Comprehensive
(Loss) | |
| | |
| | | | | | | |
| | | Shares | | Amount | | | | | | | |
| Balance at December 31, 1999 | | | 11,905,774 | | $ | 15,478 | | $ | 86,329,599 | | $ | (591,142 | ) | $ | (17,703,528 | ) | $ | (229,704 | ) | $ | 67,820,703 | | | | |
| Amortization of unearned compensation | | | | | | | | | | | | 428,898 | | | | | | | | | 428,898 | | | | |
| Issuance of compensatory stock options | | | | | | | | | 164,476 | | | | | | | | | | | | 164,476 | | | | |
| Sale of Common Stock under employee stock purchase plans and exercise of stock options | | | 248,413 | | | 322 | | | 1,729,451 | | | | | | | | | | | | 1,729,773 | | | | |
| Exercise of warrants | | | 112,993 | | | 147 | | | 195,624 | | | | | | | | | | | | 195,771 | | | | |
| Net loss for the year ended December 31, 2000 | | | | | | | | | | | | | | | (5,917,156 | ) | | | | | (5,917,156 | ) | $ | (5,917,156 | ) |
| Changes in unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | 331,475 | | | 331,475 | | | 331,475 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Balance at December 31, 2000 | | | 12,267,180 | | | 15,947 | | | 88,419,150 | | | (162,244 | ) | | (23,620,684 | ) | | 101,771 | | | 64,753,940 | | $ | (5,585,681 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Amortization of unearned compensation | | | | | | | | | | | | 139,094 | | | | | | | | | 139,094 | | | | |
| Issuance of compensatory stock options | | | | | | | | | 238,333 | | | | | | | | | | | | 238,333 | | | | |
| Sale of Common Stock under employee stock purchase plans and exercise of stock options | | | 91,403 | | | 119 | | | 880,242 | | | | | | | | | | | | 880,361 | | | | |
| Exercise of warrants | | | 71,333 | | | 93 | | | 126,350 | | | | | | | | | | | | 126,443 | | | | |
| Net loss for the year ended December 31, 2001 | | | | | | | | | | | | | | | (1,898,150 | ) | | | | | (1,898,150 | ) | | (1,898,150 | ) |
| Changes in unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | 105,342 | | | 105,342 | | | 105,342 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Balance at December 31, 2001 | | | 12,429,916 | | | 16,159 | | | 89,664,075 | | | (23,150 | ) | | (25,518,834 | ) | | 207,113 | | | 64,345,363 | | | (1,792,808 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Amortization of unearned compensation | | | | | | | | | | | | 23,150 | | | | | | | | | 23,150 | | | | |
| Issuance of compensatory stock options | | | | | | | | | 250,126 | | | | | | | | | | | | 250,126 | | | | |
| Sale of Common Stock under employee stock purchase plans and exercise of stock options | | | 181,669 | | | 236 | | | 1,137,996 | | | | | | | | | | | | 1,138,232 | | | | |
| Exercise of warrants | | | 70,000 | | | 91 | | | 279,909 | | | | | | | | | | | | 280,000 | | | | |
| Net loss for the year ended December 31, 2002 | | | | | | | | | | | | | | | (20,788,808 | ) | | | | | (20,788,808 | ) | | (20,788,808 | ) |
| Changes in unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | (101,434 | ) | | (101,434 | ) | | (101,434 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Balance at December 31, 2002 | | | 12,681,585 | | $ | 16,486 | | $ | 91,332,106 | | $ | — | | $ | (46,307,642 | ) | $ | 105,679 | | $ | 45,146,629 | | $ | (20,890,242 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-5
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Statements of Cash Flows
| | | December 31, | |
| | |
| |
| | | 2000 | | 2001 | | 2002 | |
| Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (5,917,156 | ) | $ | (1,898,150 | ) | $ | (20,788,808 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | |
| Depreciation and amortization | | | 708,874 | | | 707,382 | | | 1,048,960 | |
| Amortization of premiums, net of discounts, on marketable securities | | | 436,957 | | | 383,613 | | | 1,223,948 | |
| Amortization of discount on investment in Joint Venture | | | 87,504 | | | 42,749 | | | | |
| Loss in Joint Venture | | | 945,519 | | | 2,225,454 | | | 2,886,423 | |
| Non-cash expense incurred in connection with issuance of common stock, stock options | | | 593,374 | | | 377,427 | | | 273,276 | |
| Realized loss from the sale of marketable securities | | | | | | 64,181 | | | | |
| Changes in assets and liabilities: | | | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (1,504,939 | ) | | 2,273,659 | | | 44,014 | |
| (Increase) decrease in other current assets | | | (668,585 | ) | | (393,541 | ) | | 512,770 | |
| Decrease in security deposits and other assets | | | 3,039 | | | | | | | |
| Increase (decrease) in accounts payable and accrued expenses | | | (1,365,603 | ) | | 519,632 | | | 321,164 | |
| Increase in investment in Joint Venture | | | (901,836 | ) | | (2,275,389 | ) | | (2,800,000 | ) |
| Increase in deferred lease liability | | | | | | 38,797 | | | 32,467 | |
| | |
|
| |
|
| |
|
| |
Net cash provided by (used in) operating activities | | | (7,582,852 | ) | | 2,065,814 | | | (17,245,786 | ) |
| | |
|
| |
|
| |
|
| |
| Cash flows from investing activities: | | | | | | | | | | |
| Capital expenditures | | | (1,325,243 | ) | | (1,264,799 | ) | | (2,219,644 | ) |
| Purchase of marketable securities | | | (41,064,989 | ) | | (49,704,020 | ) | | (13,068,661 | ) |
| Sale of marketable securities | | | 30,569,000 | | | 52,038,819 | | | 29,934,000 | |
| Purchase of certificate of deposit | | | (1,000,000 | ) | | | | | | |
| Sale of certificate of deposit | | | | | | 1,000,000 | | | | |
| Increase in restricted cash | | | | | | | | | (130,795 | ) |
| | |
|
| |
|
| |
|
| �� |
Net cash (used in) provided by investing activities | | | (12,821,232 | ) | | 2,070,000 | | | 14,514,900 | |
| | |
|
| |
|
| |
|
| |
| Cash flows from financing activities: | | | | | | | | | | |
| Proceeds from issuance of equity securities | | | 1,925,544 | | | 1,006,804 | | | 1,418,232 | |
| Payment of capital lease obligations | | | (104,921 | ) | | (11,969 | ) | | | |
| | |
|
| |
|
| |
|
| |
Net cash provided by financing activities | | | 1,820,623 | | | 994,835 | | | 1,418,232 | |
| | |
|
| |
|
| |
|
| |
Net increase (decrease) in cash and cash equivalents | | | (18,583,461 | ) | | 5,130,649 | | | (1,312,654 | ) |
| | |
|
| |
|
| |
|
| |
Cash and cash equivalents at beginning of period | | | 24,212,448 | | | 5,628,987 | | | 10,759,636 | |
| | |
|
| |
|
| |
|
| |
Cash and cash equivalents at end of period | | $ | 5,628,987 | | $ | 10,759,636 | | $ | 9,446,982 | |
| | |
|
| |
|
| |
|
| |
| Supplemental disclosure of cash flow information: | | | | | | | | | | |
| Cash paid for interest | | $ | 7,388 | | $ | 6,067 | | $ | 1,695 | |
| Supplemental disclosure of noncash investing and financing activities: | | | | | | | | | | |
| Fixed assets included in accounts payable and accrued expenses | | $ | 238,089 | | $ | 25,352 | | | | |
The accompanying notes are an integral part of the financial statements.
F-6
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements
1. | Organization and Business |
| | |
| | Progenics Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. The Company applies its expertise in clinical medicine, immunology and molecular biology to develop biopharmaceuticals to fight viral diseases, such as human immunodeficiency virus (“HIV”) infection, and cancers, including malignant melanoma and prostate cancer as well as to enhance symptom management and supportive care. The Company was incorporated in Delaware on December 1, 1986. All of the Company’s operations are located in New York. The Company operates under a single segment. |
| | |
2. | Summary of Significant Accounting Policies |
| | |
| | Revenue Recognition |
| | Payments received from PSMA Development Company L.L.C. (“PSMA”) (a related party), the Company’s joint venture with Cytogen Corporation for contract research and development are recognized as revenue as the related services are performed by the Company in excess of defined contractual amounts (see Note 8). The gross profit margin on such revenues is not material. |
| | |
| | Payments have been received from Bristol-Myers Squibb Company, Hoffmann-LaRoche, the Department of Defense, Aaron Diamond AIDS Research Center and the National Institutes of Health (collectively the “Collaborators”) (see Note 7) for contract research and development. Such amounts are recognized as revenue as the related services are performed by the Company, provided the collection of the resulting receivable is probable. In situations where the Company receives payments in advance of performance of services, such amounts are deferred and recognized as revenue as the related services are performed. |
| | |
| | The Company has been awarded government research grants and contracts from the National Institutes of Health (the “NIH”). The NIH grants are used to subsidize the Company’s research projects (“Projects”). NIH grant revenue is recognized on a pro rata basis as subsidized Project costs are incurred. Such method approximates the straight-line basis over the lives of the Projects. The NIH contracts reimburse the Company for costs associated with manufacturing products ordered by the NIH in the HIV area. |
| | |
| | The Company has derived all of its product revenue from the sale of research reagents. Product sales revenue is recognized at the time reagents are shipped. The reagents are products of the Company’s research and development efforts. The Company maintains no inventory of reagents and cost of product sales is not material. |
| | |
| | On January 1, 2000, the Company adopted Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). In accordance with SAB 101, Non-refundable fees, including payments for services, up-front licensing fees and milestone payments (collectively, “Non-refundable Fees”), are recognized as revenue based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, revenue recognized is limited to the amount of Non-refundable Fees received. |
| | |
| | Prior to January 1, 2000, the Company recognized revenue as described above, except that certain Non-refundable Fees were recognized as revenue when there were no additional contractual services to be provided or costs to be incurred by the Company in connection with the Non-refundable Fee. There was no cumulative effect of adopting SAB 101 at January 1, 2000. |
F-7
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | Interest income is recognized as earned. |
| | |
| | For each of the three years in the period ended December 31, 2002, all of the Company’s research grant revenue and contract research and development revenue came from PSMA and the Collaborators. |
| | |
| | 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 cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and clinical trials. All costs associated with research and development are expensed as incurred. |
| | |
| | For each clinical trial that the Company conducts, certain clinical trials costs, which are included in research and development expenses, are expensed based on the total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations provide services. |
| | |
| | Patents |
| | As a result of research and development efforts conducted by the Company, it has applied, or is applying, for a number of patents to protect proprietary inventions. All costs associated with patents are expensed as incurred. |
| | |
| | Net Loss Per Share |
| | The Company prepares its per share data in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”). Basic net loss per share is computed on the basis of net loss for the period divided by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share includes, where dilutive, the number of shares issuable upon exercise of outstanding options and warrants. Disclosures required by SFAS No. 128 have been included in Note 12. |
| | |
| | Concentrations of Credit Risk |
| | Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities and receivables from PSMA and the Collaborators. The Company invests its excess cash in investment grade securities issued by corporations and governments. The Company has established guidelines that relate to credit quality, diversification and maturity and that limit exposure to any one issue of securities. |
| | |
| | Cash and Cash Equivalents |
| | The Company considers 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 the Company to concentrations of credit risk. At December 31, 2002 and 2001, the Company had invested approximately $9,281,000 and $6,223,000, respectively, in funds with two major investment companies and held approximately $166,000 and $4,537,000, respectively, in a single commercial bank. |
F-8
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | 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. 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 | Life of lease |
| | Income Taxes |
| | The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 requires that the Company 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 liabilities and assets 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. |
| | |
| | Risks and Uncertainties |
| | The Company has no products approved for sale by the U.S. Food and Drug Administration. There can be no assurance that the Company’s research and development will be successfully completed, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. In addition, the Company operates in an environment of rapid change in technology and is dependent upon the continued services of its current employees, consultants and subcontractors. |
| | |
| | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates relate to revenue recognition, recognition of clinical trial costs, useful lives of fixed assets and deferred taxes. Actual results could differ from those estimates. |
| | |
| | Stock-Based Compensation |
| | The accompanying financial position and results of operations of the Company have been prepared in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under APB No. 25, generally, no compensation expense is recognized in the financial statements in connection with the awarding of stock option grants to employees provided that, as of the grant date, all terms associated with the award are fixed and the fair value of the Company’s stock, as of the grant date, is equal to or less than the amount an employee must pay to acquire the stock. The Company will recognize compensation expense in situations where the terms of an option grant are not fixed or where the quoted market price of the Company’s |
F-9
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | common stock on the grant date is greater than the amount an employee must pay to acquire the stock. |
| | |
| | The fair value of options and warrants granted to non-employees for financing, goods or services are included in the financial statements and expensed over the life of the debt, as the goods are utilized or the services performed, respectively. |
| | |
| | The following table summarizes the pro forma operating results of the Company had compensation costs for the Company’s incentive stock option and stock purchase plans been determined in accordance with the fair value based method of accounting for stock based compensation as prescribed by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Since option grants awarded during 2000, 2001 and 2002 vest over several years and additional awards are expected to be issued in the future, the pro forma results shown below are not likely to be representative of the effects on future years of the application of the fair value based method. |
| | | Years Ended December 31, | |
| | |
| |
| | | 2000 | | 2001 | | 2002 | |
| Net loss, as reported | | | (5,917,156 | ) | | (1,898,150 | ) | | (20,788,808 | ) |
| Add: Stock-based employee compensation expense included in reported net loss | | | 593,374 | | | 377,427 | | | 273,276 | |
| Deduct: Total stock-based employee compensation determined under fair value based method for all awards | | | (7,651,732 | ) | | (5,779,756 | ) | | (7,736,059 | ) |
| | |
|
| |
|
| |
|
| |
| Pro forma net loss | | | (12,975,514 | ) | | (7,300,479 | ) | | (28,251,591 | ) |
| | |
|
| |
|
| |
|
| |
| Net loss per share amounts, basic and diluted: | | | | | | | | | | |
| As reported | | $ | (0.49 | ) | $ | (0.15 | ) | $ | (1.66 | ) |
| | |
|
| |
|
| |
|
| |
| Pro forma | | $ | (0.58 | ) | $ | (0.59 | ) | $ | (2.25 | ) |
| | |
|
| |
|
| |
|
| |
| | Other disclosures required by SFAS No. 123 have been included in Note 9. |
| | |
| | Comprehensive Loss |
| | Comprehensive loss represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss of the Company includes net loss adjusted for the change in net unrealized gain or loss on marketable securities. The disclosures required by Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” for the years ended December 31, 2000, 2001 and 2002 have been included in the Statements of Stockholders’ Equity and Comprehensive Loss. |
| | |
| | Reclassifications |
| | Certain reclassifications have been made to the financial statements for 2000 and 2001 to conform with the current year’s presentation. |
F-10
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | Impact of Future Adoption of Recently Issued Accounting Standards |
| | In June 2002, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 146 (“FAS 146”) “Accounting for Costs Associated with Exit or Disposal Activities”. FAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than on the date of an entity’s commitment to an exit plan and establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement shall be effective for exit or disposal activities initiated after December 31, 2002. The provisions of Issue 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of Issue 94-3 prior to this Statement’s initial application. |
| | |
| | On December 31, 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FAS 123” (“FAS 148”). FAS 148 provides several transition provisions that may be used upon adoption of the accounting provisions of FAS 123. FAS 148 also mandates certain new disclosures, whether or not FAS 123 is adopted, that are incremental to those required by FAS 123. Those disclosures must be made in both interim and annual financial statements. The transition and annual disclosure provisions of FAS 148 are effective for fiscal years ending after December 15, 2002. The new interim disclosure provisions are effective for the first interim period beginning after December 15, 2002. |
| | |
| | On November 21, 2002, the EITF finalized Issue No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables”, (“EITF 00-21”) which addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. EITF 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. |
| | |
| | On November 25, 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance incorporated without change from Interpretation 34 continues to be required for financial statements for fiscal years ending after June 15, 1981 - the effective date of Interpretation 34. |
| | |
| | Management believes that the future adoption of these accounting standards will not have a material impact on the Company’s financial statements. |
F-11
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
3. | Marketable Securities |
| | |
| | The Company considers its marketable securities to be “available-for-sale,” as defined by Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and, accordingly, unrealized holding gains and losses are excluded from operations and reported as a net amount in a separate component of stockholders’ equity. |
| | |
| | As of December 31, 2001 and 2002, marketable securities had maturities of less than three years. The following table summarizes the amortized cost basis, the aggregate fair value, and gross unrealized holding gains and losses at December 31, 2001 and 2002: |
| | | | Amortized
Cost Basis | | | Fair
Value | | Unrealized Holding | |
| |
| |
| | Gains | | (Losses) | | Net | |
2002: | | | | | | | | | | | | | | | | |
| Maturities less than one year | | | | | | | | | | | | | | | | |
| Corporate debt securities | | $ | 27,656,725 | | $ | 27,753,984 | | $ | 103,439 | | $ | (6,180 | ) | $ | 97,259 | |
| Maturities between one and two years | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | 5,164,388 | | | 5,172,808 | | | 10,985 | | | (2,565 | ) | | 8,420 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | $ | 32,821,113 | | $ | 32,926,792 | | $ | 114,424 | | $ | (8,745 | ) | $ | 105,679 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
2001: | | | | | | | | | | | | | | | | |
| Maturities less than one year | | | | | | | | | | | | | | | | |
| Corporate debt securities | | $ | 30,237,360 | | $ | 30,523,239 | | $ | 288,111 | | $ | (2,232 | ) | $ | 285,879 | |
| Maturities between one and three years | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | 20,673,040 | | | 20,594,274 | | | 32,402 | | | (111,168 | ) | | (78,766 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | $ | 50,910,400 | | $ | 51,117,513 | | $ | 320,513 | | $ | (113,400 | ) | $ | 207,113 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| There were no realized gains and losses from the sale of marketable securities for the years ended December 31, 2000 and 2002. The realized loss for the year ended December 31, 2001 was $64,181. The Company computes the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. The fair value of marketable securities has been estimated based on quoted market prices. |
F-12
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
4. | Fixed Assets |
| | |
| | Fixed assets, including amounts under capitalized lease obligations, consist of the following: |
| | | December 31, | |
| | |
| |
| | | | 2001 | | | 2002 | |
| Computer equipment | | $ | 391,975 | | $ | 372,162 | |
| Machinery and equipment | | | 3,326,612 | | | 4,168,486 | |
| Furniture and fixtures | | | 525,637 | | | 536,573 | |
| Leasehold improvements | | | 1,821,759 | | | 2,372,946 | |
| | |
|
| |
|
| |
| | | | 6,065,983 | | | 7,450,167 | |
| Less, Accumulated depreciation and amortization | | | (3,505,784 | ) | | (3,744,636 | ) |
| | |
|
| |
|
| |
| | | $ | 2,560,199 | | $ | 3,705,531 | |
| | |
|
| |
|
| |
5. | Accounts Payable and Accrued Expenses |
| | |
| | Accounts payable and accrued expenses consist of the following: |
| | | December 31, | |
| | |
| |
| | | 2001 | | 2002 | |
| Accounts payable | | $ | 916,711 | | $ | 1,199,998 | |
| Accrued consulting and clinical trial costs | | | 703,508 | | | 557,113 | |
| Accrued payroll and related costs | | | 543,283 | | | 568,358 | |
| Legal fees payable | | | 433,587 | | | 567,432 | |
| Other | | | | | | 7,127 | |
| | |
|
| |
|
| |
| | | $ | 2,597,089 | | $ | 2,900,028 | |
| | |
|
| |
|
| |
| |
| |
| |
| | |
| | In connection with the issuance of equity securities in 1995 and 1996, the Company issued 260,455 five-year warrants (the “Warrants”). Each Warrant entitled the holder to purchase one share of Common Stock at $6.67. The number of Warrants and their exercise price were subject to adjustment in the event the Company issued additional shares of Common Stock at below defined per share prices. During each of the years ended December 31, 2000 and 2001, 136,753, and 101,275 warrants were exercised. As of December 31, 2001, all of the Warrants had been exercised. |
| | |
| | During March 1997, the Company obtained a line of credit (“Line”) from a bank. The terms of the Line provide for the Company to borrow up to $2.0 million. The Line expired on July 31, 1997. The payment of the Line was guaranteed by two affiliates of a stockholder of the Company (“Affiliates”). In consideration for the guarantee of the Line, which has since been terminated, the Company issued 70,000 warrants to the Affiliates. Such warrants vested immediately, |
F-13
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | expired after five years and had an exercise price of $4.00. During the year ended December 31, 2002, all 70,000 warrants were exercised. |
| | |
7. | Commitments and Contingencies |
| | |
| a. | Operating Leases |
| | The Company leases office and laboratory space under a noncancelable sublease agreement. The sublease, as amended, provides for fixed monthly rental expense of approximately $60,000 through December 31, 2002 and $65,081 from January 2003 through June 30, 2005. Such amounts are recognized as rent expense on a straight-line basis over the term of the sublease. The sublease also provides for additional charges based upon usage of certain utilities in excess of defined amounts (“Additional Utility Charges”). The sublease can be extended at the option of the Company for two additional two-year terms. |
| | | |
| | | The Company also leases certain office equipment under noncancelable operating leases. The leases expire at various times through March 2005. As of December 31, 2002, future minimum annual payments under all operating lease agreements, are as follows: |
Years ending
December 31, | | | Minimum
Annual
Payments | |
| 2003 | | $ | 792,312 | |
| 2004 | | | 792,312 | |
| 2005 | | | 401,826 | |
| | |
|
| |
| | | $ | 1,986,450 | |
| | |
|
| |
| | | Rental expense totalled approximately $441,000, $611,000 and $752,000 for the years ended December 31, 2000, 2001 and 2002, respectively. For the years ended December 31, 2001, 2002, the Company recognized rental expense in excess of amounts paid of approximately $39,000 and $32,000, respectively. Additional utility charges for the years ended December 31, 2000, 2001 and 2002 were approximately $551,000, $805,000 and $1,060,000, respectively. |
| | | |
| | b. | Licensing, Corporate Collaboration and Service Agreements |
| | | i. | Universities |
| | | | The Company (as licensee) has a worldwide licensing agreement with Columbia University (“Columbia”). The license, as amended during October 1996, provides the Company with the exclusive right to use certain technology developed on behalf of Columbia. According to the terms of the agreement, the Company is required to pay nonrefundable licensing fees (“Licensing Fees”), payable in installments by defined dates or, if earlier, as certain milestones associated with product development (“Milestones”) occur, as defined, which include the manufacture and distribution of a product which uses the licensed technology by 2004. The Company expenses Licensing Fees when they become payable by the Company to Columbia. In addition, the Company is required to remit royalties based upon the greater of minimum royalties, as defined, or a percentage of net sales of products which utilize the licensed technology and a portion of sublicensing income, as defined. The licensing agreement may be terminated by Columbia under certain circumstances which includes the Company’s |
| | | | | |
F-14
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | | | failure to achieve the Milestones; however, Columbia shall not unreasonably withhold its consent to revisions to the due dates for achieving the Milestones under certain circumstances. If not terminated early, the agreement shall continue until expiration, lapse or invalidation of Columbia’s patents on the licensed technology. The Company has the right to terminate the agreement at any time upon 90 days prior written notice. The termination of the license could have a material adverse effect on the business of the Company. Although the Company intends to use its best efforts to comply with the terms of the agreement, there can be no assurances that the agreement will not be terminated. |
| | | | |
| | | | In September 1996, the Company (as licensee) entered into a licensing agreement with The Regents of the University of California (“Regents”). According to the terms of the agreement, the Company is required to remit royalties based upon the greater of minimum of royalties or a percentage of product sales and a portion of sublicensing income, as defined. The agreement can be terminated by the Company upon 90 days notice or by Regents in the event the Company fails to perform, which includes the achievement of certain defined milestones; otherwise the agreement terminates upon the lapse of Regents’ patent regarding the licensed technology. In December 2002, the Regents Agreement expired. |
| | | | |
| | | ii. | Sloan-Kettering Institute for Cancer Research |
| | | | In November 1994, the Company (as licensee) entered into a worldwide exclusive licensing agreement with Sloan-Kettering Institute for Cancer Research (“Sloan-Kettering”) whereby the Company has the exclusive right to use certain technology owned by Sloan-Kettering. Certain employees of Sloan-Kettering are consultants to the Company (see Note 7(d)). The Company is required to remit royalties based upon the greater of minimum royalties, as defined, or as a percentage of sales of any licensed product, as defined (“Product Royalties”), and sublicense income, as defined, earned under sublicenses granted by the Company in accordance with this licensing agreement (“Sublicense Royalties”). In the event that no Product Royalties or Sublicense Royalties are due in a given calendar year, then a defined percentage of that year’s minimum royalty will be creditable against future Product Royalties or Sublicense Royalties due Sloan-Kettering. The licensing agreement may be terminated by Sloan-Kettering in the event that the Company fails to achieve certain defined objectives, which include the manufacture and distribution of a product which uses the licensed technology, by 2004, or if the Company fails to satisfy certain other contractual obligations (“Early Termination”); otherwise the agreement shall terminate either upon the expiration or abandonment of Sloan-Kettering’s patents on the technology licensed, or 15 years from the date of first commercial sale, as defined, whichever is later. With regard to Early Termination, Sloan-Kettering shall not unreasonably withhold its consent to revisions to the due dates for achieving the defined objectives under certain circumstances. The Company has the right to terminate the agreement at any time upon 90 days prior written notice (“Company Termination”). In the event of Early Termination or Company Termination, all licensing rights under the agreement would revert to Sloan-Kettering. Early Termination of the license could have a material adverse effect on the business of the Company. The Company is also party to a license agreement with Sloan-Kettering whereby the Company has en exclusive, worldwide license to certain patents relating to DHA, which license continues for 20 years or until the expiration of the subject patents. Although the Company intends to use its best efforts to comply with the terms of the license, there can be no assurance that the licensing agreement will not be terminated. |
F-15
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | | iii. | Aquila Biopharmaceuticals, Inc. |
| | | | In August 1995, the Company (as licensee) entered into a license and supply agreement (the “L&S Agreement”) with Aquila Biopharmaceuticals, Inc., a wholly owned subsidiary of Antigenics, Inc. (“Aquila”). Under the terms of the L&S Agreement, the Company obtained a coexclusive license to use certain technology and a right to purchase QS-21 adjuvant (the “Product”) from Aquila for use in the Company’s research and development activities. In consideration for the license, the Company paid a nonrefundable, noncreditable license fee and issued 45,000 restricted shares of the Company’s Common Stock (“Restricted Shares”) to Aquila. The Restricted Shares are nontransferable with this restriction lapsing upon the Company’s achievement of certain milestones (“L&S Milestones”), as defined. In the event that any one or more L&S Milestones do not occur, the underlying Restricted Shares would be returned to the Company. As of December 31, 2002, the restrictions on 22,500 shares of common stock have lapsed. The fair value of the Restricted Shares, combined with the noncreditable license fee, were expensed during 1995 as research and development. In addition, the Company will be required to remit royalties based upon the net sales of products sold using the licensed technology (“Licensed Products”) and a defined percentage of any sublicense fees and royalties payable to the Company with respect to Licensed Products. The L&S Agreement may be terminated by Aquila in the event that the Company fails to achieve certain defined objectives, which include the manufacture and distribution of a Licensed Product, by 2004 (“Early Termination”); otherwise the L&S Agreement shall terminate upon the expiration of Aquila’s patents on the technology licensed. With regard to Early Termination, Aquila shall not unreasonably withhold its consent to revisions to the due dates for achieving the L&S Milestones under certain circumstances. The Company has the right to terminate the L&S Agreement at any time upon 90 days prior written notice (“Company Termination”), as defined. In the event of Early Termination or Company Termination, all licensing rights under the agreement would revert to Aquila. Early termination of the L&S Agreement could have a material adverse effect on the business of the Company. Although the Company intends to use its best efforts to comply with the terms of the L&S Agreement, there can be no assurance that the agreement will not be terminated. |
| | | | |
| | | iv. | Bristol-Myers Squibb Company |
| | | | In July 1997, the Company and Bristol-Myers Squibb Company (“BMS”) entered into a Joint Development and Master License Agreement (the “BMS License Agreement”) under which BMS obtained an exclusive license to certain therapeutic cancer vaccines (the “Cancer Vaccines”). Upon execution of the agreement, BMS made non-refundable cash payments as reimbursement for certain expenses incurred by the Company in the development of the Cancer Vaccines and as a licensing fee. In addition, BMS was obligated to make future non-refundable payments as defined upon the achievement of specified milestones and pay royalties on any product sales. BMS also subsidized ongoing development, clinical trials and regulatory filings (“Development Costs”) conducted by the Company on a time and material basis related to the Cancer Vaccines. |
| | | | |
| | | | In May 2001, BMS and the Company mutually agreed to terminate the BMS License Agreement. Under the terms of the settlement agreement, BMS relinquished all future rights to the Cancer Vaccines and paid the Company $15.5 million. Approximately $5.6 million of the payment related to contract work performed prior to termination and the balance was a contract termination payment. Under the terms of certain license agreements, a portion of the termination payment was paid to certain licensors. |
F-16
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | | v. | Hoffmann-LaRoche |
| | | | On December 23, 1997 (the “Effective Date”), the Company entered into an agreement (the “Roche Agreement”) to conduct a research collaboration with F. Hoffmann-LaRoche Ltd and Hoffmann-LaRoche, Inc. (collectively “Roche”) to identify novel HIV therapeutics (the “Compound”). The Roche Agreement grants to Roche an exclusive worldwide license to use certain of the Company’s intellectual property rights related to HIV to develop, make, use and sell products resulting from the collaboration. |
| | | | |
| | | | The terms of the Roche Agreement require Roche to pay the Company an upfront fee and defined amounts annually for the first year, with annual adjustments thereafter, for the funding of research conducted by the Company. Roche’s annual payment is made quarterly in advance. In addition, the Company will receive non-refundable milestone payments and royalty payments based on achievement of certain events and a percentage of worldwide sales of products developed from the collaboration, respectively. The collaboration had an original term of three years and was subsequently extended for two additional years by mutual agreement. |
| | | | |
| | | | In March 2002, Roche exercised its right to discontinue funding the research being conducted under the Roche Agreement. Discussions between Roche and the Company resulted in an agreement by which the Company gained the exclusive rights to develop and market the Compound, as defined. Provided Roche has not elected its option to resume joint development and commercialization of the Compound, Roche is entitled to receive certain milestone payments and royalties, as defined |
| | | | |
| | | vi. | Development and License Agreement with Protein Design Labs, Inc. |
| | | | Effective April 30, 1999, the Company and Protein Design Labs, Inc. (“PDL”) entered into a Development and License Agreement (the “License Agreement”) under which PDL agreed to develop a humanized antibody (the “Technology”) on behalf of the Company and granted to the Company an exclusive worldwide license under certain patents and patent applications to develop, use and sell products arising from the Technology (“Products”). PDL also granted to the Company non-exclusive licenses to PDL technical information, as defined, and sublicenses to PDL licenses from third parties to the extent necessary to enable the Company to make, use and sell Products. In addition, in June 1999 the Company exercised its right under the License Agreement to acquire an option to obtain a sublicense to certain additional patents and paid PDL a fee in connection therewith. |
| | | | |
| | | | Upon the achievement by PDL of certain performance-based milestones, as defined, the Company is required to make non-refundable payments to PDL. The Company is also required to pay royalties based on a percentage of net sales, as defined, of all Products for a specified period and non-refundable annual maintenance fees under certain conditions. |
| | | | |
| | | | The Company has the ability to terminate the License Agreement upon 60 days prior written notice. If terminated prior to a defined date, the Company will reimburse PDL for costs and expenses to the date of termination. Either party may terminate the License Agreement upon 10 or 30 days written notice of default in making scheduled payments or other breach, respectively, that is not cured by the other party. Otherwise, the License Agreement will continue until expiration of the Company’s obligation to pay royalties to PDL. |
F-17
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | | vii. | Genzyme Transgenics Corporation |
| | | | The Company has entered into a collaboration with Genzyme Transgenics to develop a transgenic source of the PRO 542 molecule. Under this agreement, Genzyme Transgenic is engaged in a program designed to result in the establishment of a line of transgenic goats capable of expressing the molecule in lactation milk. The Company is obligated to pay Genzyme Transgenics certain fees to conduct the program as well as additional fees upon the achievement of specified milestones. |
| | | | |
| | | viii. | Pharmacopeia, Inc. |
| | | | In March 2000, the Company entered into a research and license agreement with Pharmacopeia, Inc. to discover therapeutic treatments related to HIV. This agreement expanded on a collaboration with Pharmacopeia commenced in September 1997. Under the terms of the new agreement, the Company will provide proprietary assays and expertise and Pharmacopeia will engage in a screening program of its internal compound library. In August 2000, the Company expanded its collaboration with Pharmacopeia to add two additional programs. Progenics will be granted a license to active compounds identified in the program. The Company is obligated to pay Pharmacopeia fees as well as additional amounts upon the achievement of specified milestones and royalties on any sales of therapeutics marketed as a result of the collaboration. |
| | | | |
| | | ix. | UR Labs, Inc. |
| | | | In October 2001, the Company entered into an agreement with UR Labs, Inc. (the “URL Agreement”) to obtain worldwide exclusive rights to methylnaltrexone (MNTX), an investigational drug in late-stage clinical development. UR Labs has exclusively licensed MNTX from the University of Chicago, where it was discovered. In consideration for the license, the Company paid a nonrefundable, noncreditable license fee and is obligated to pay additional payments upon the occurrence of certain defined milestones associated with the MNTX product development and commercialization program. In addition, the Company is required to pay royalties based upon net sales of the licensed products, subject to certain set off rights of the Company and the right of the Company to buy-down the royalty rate under defined circumstances. The URL Agreement may be terminated by UR Labs under specified circumstances that include the Company’s failure to achieve certain milestones; however the consent of UR Labs to revisions to the due dates for the milestones shall not be unreasonably withheld under certain circumstances. If not terminated early, the URL Agreement continues until the later of the expiration of the UR Labs patents or defined period. The Company has the right to terminate the URL Agreement upon 60 days prior written notice. The termination of the URL Agreement could have a material adverse effect on the business of the Company. Although the Company intends to use its best efforts to comply with the terms of the URL Agreement, there can be no assurances that the agreement will not be terminated. |
| | | | |
| | In connection with all the agreements discussed above, the Company has recognized milestone, license and sub-license fees, which are included in research and development expenses, totaling approximately $2,110,000, $2,141,000 and $1,090,000 for the years ended December 31, 2000, 2001 and 2002, respectively. In addition, as of December 31, 2002, remaining payments associated with milestones and defined objectives with respect to the above agreements total approximately $22 million. Future annual minimum royalties under the licensing agreements described in (i) through (iii) and (vi) through (ix) above are not significant. |
F-18
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | c. | Consulting Agreements |
| | As part of the Company’s research and development efforts it enters into consulting agreements with external scientific specialists (“Scientists”) and others. These Agreements contain varying terms and provisions including fees to be paid by the Company and royalties, in the event of future sales, and milestone payments, upon achievement of defined events, payable to the Company. Certain Scientists, some of who are members of the Company’s Scientific Advisory Board, have purchased Common Stock or received stock options which are subject to vesting provisions, as defined. The Company has recognized expenses with regards to these consulting agreements totaling approximately $719,000, $538,000 and $500,000 for the years ended December 31, 2000, 2001 and 2002, respectively. For the years ended December 31, 2000, 2001 and 2002, such expenses include the fair value of stock options granted during 2000, 2001 and 2002, which were fully vested at grant date, of approximately $164,000, $238,000 and $250,000, respectively. |
| | | |
8. | PSMA Development Company LLC |
| | |
| | On June 15, 1999, the Company and CYTOGEN Corporation (“CYTOGEN”) (collectively, the “Members”) formed a joint venture in the form of a limited liability company (the “LLC” or “JV”) for the purposes of conducting research, development, manufacturing and marketing of products related to prostate-specific membrane antigen (“PSMA”). Each Member currently owns 50% of the JV and accounts for such investment under the equity method. In connection with the formation of the JV, the Members entered into a series of agreements, including an LLC Agreement, a License Agreement and a Services Agreement, as amended, (collectively, the “Agreements”). Each Member made an initial capital contribution of $100,000. In general, each Member has equal representation on the JV’s management committee and equal voting rights and equal rights to profits and losses of the JV. |
| | |
| | Under the LLC Agreement, the Company was required to pay to the JV $2.0 million in supplemental capital contributions at certain defined dates or upon the achievement of defined milestones by the JV. As discussed below, since it was probable that the Company would be required to fund the $2.0 million supplemental capital contribution, the Company, on June 15, 1999, recorded a liability to the JV of approximately $1.8 million. Such amount represented the present value of the supplemental capital contribution discounted at 10%. The discount was amortized as interest expense over the term of the remaining payments. One million dollars was paid in 1999 and $500,000 was paid during each of 2000 and 2001. |
| | |
| | In accordance with the Agreements, the Company’s $2.0 million supplemental capital contribution was used by the JV to pay a $2.0 million non-refundable licensing fee to CYTOGEN (“CYTOGEN Payment”). The payment terms of the CYTOGEN Payment were identical to the payment terms of the Company’s required supplemental capital contribution. Accordingly, at inception, the JV discounted the CYTOGEN Payment along with the Company’s supplemental capital contribution thereby recording approximately a $1.8 million liability to CYTOGEN and a $1.8 million receivable from the Company. |
| | |
| | The Company is engaged in a research program on behalf of the JV under the Services Agreement and is compensated for its services based on agreed upon terms. As of March 31, 2002, and through December 31, 2002, the Company was performing services for the JV under a month-to-month extension of the Services Agreement. At December 31, 2002, and through March 28, 2003, the Members were negotiating the terms of a new Services Agreement. |
| | |
| | The Company was originally required to fund the cost of research up to $3.0 million. As of December 31, 2001, the Company had surpassed the $3.0 million in funding for research |
F-19
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | costs. Accordingly, each Member made capital contributions of $900,000 and $2.3 million in the years ended December 31, 2001 and 2002, respectively to fund future research costs and share such costs equally. The level of commitment by the Members to fund the JV is based on an annual budget that is approved by both Members. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002. |
| | |
| | Amounts received from the JV as reimbursement of research and development costs in excess of the initial $3.0 million (see above) provided in accordance with the Services Agreement are recognized as contract research and development revenue. For the years ended December 31, 2001 and 2002, such amounts totaled approximately $200,000 and $5.3 million, respectively and the gross profit margin on such revenue was not material. Contract research and development revenue recognized by the Company related to services provided to the JV may vary in the future due to potential future funding limitations on the part of the Members, the extent to which the JV continues to rely on Progenics to perform research and development under the Services Agreement and the terms of any amendments to the Services Agreement. All inventions made by the Company in connection with the Services Agreement will be assigned to the JV for its use and benefit. |
| | |
| | The Agreements generally terminate upon the last to expire of the patents granted by the Members to the JV or upon breach by either party, which is not cured within 60 days of written notice. |
| | |
| | The Company accounts for its investment in the JV in accordance with the equity method of accounting. Selected financial statement data of the JV are as follows: |
| | | December 31, | |
| | |
| |
| | | 2001 | | 2002 | |
Balance Sheet Data | | | | | | | |
| Cash | | $ | 1,009,929 | | $ | 289,904 | |
| | |
|
| |
|
| |
| Accounts payable to Progenics | | | 351,333 | | | 304,154 | |
| Capital contributions: | | | | | | | |
| CYTOGEN | | | 1,000,000 | | | 3,300,000 | |
| Progenics | | | 5,798,424 | | | 8,098,424 | |
| Contribution receivable from Progenics | | | (500,000 | ) | | | |
| Accumulated deficit | | | (5,639,828 | ) | | (11,412,674 | ) |
| | |
|
| |
|
| |
| Total liabilities and stockholders’ equity | | $ | 1,009,929 | | $ | 289,904 | |
| | |
|
| |
|
| |
F-20
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
Statement of Operations Data
| | | For the Year Ended | |
| | |
| |
| | | 2000 | | 2001 | | 2002 | |
| | |
|
| |
|
| |
|
| |
| Total revenue (interest income) | | $ | 96,233 | | $ | 47,111 | | $ | 12,680 | |
| Total expenses (1) | | | 1,085,435 | | | 2,623,372 | | | 5,785,526 | |
| | |
|
| |
|
| |
|
| |
| Net loss (2) | | $ | (989,202 | ) | $ | (2,576,261 | ) | $ | (5,772,846 | ) |
| | |
|
| |
|
| |
|
| |
| (1) | Includes contract research and development services performed by Progenics. |
| | |
| | (2) | The terms of the joint venture agreement provided for the Company to fund up to $3.0 million in certain costs of the joint venture. During 2000 and 2001, prior to reaching the $3.0 million threshold, the loss resulting from such costs was allocated to the capital account of the Company and accordingly, the Company’s allocated share of the joint venture’s loss was greater than its ownership interest. |
9. | Stock Option and Employee Stock Purchase Plans |
| | |
| | |
F-21
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | The following table summarizes stock option information for the Plans as of December 31, 2002: |
| | | Options Outstanding | | Options Exercisable | |
| | |
| |
| |
Range of Exercise Prices | | | Number
Outstanding | | | Weighted-
Average
Remaining
Contractual
Life | | | Average
Weighted
Exercise
Price | | | Number
Exercisable | | | Weighted-
Average
Exercise
Price | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| $1.33-1.33 | | | 134,398 | | | 6.3 | | $ | 1.33 | | | 134,398 | | $ | 1.33 | |
| $3.27-4.00 | | | 527,501 | | | 3.8 | | $ | 4.00 | | | 477,501 | | $ | 4.00 | |
| $5.02-7.15 | | | 333,870 | | | 3.4 | | $ | 5.45 | | | 319,870 | | $ | 5.43 | |
| $7.98-11.76 | | | 438,283 | | | 6.8 | | $ | 9.65 | | | 278,883 | | $ | 9.48 | |
| $12.00-17.70 | | | 2,352,450 | | | 7.6 | | $ | 13.59 | | | 1,169,122 | | $ | 13.36 | |
| $18.47-27.56 | | | 242,400 | | | 8.2 | | $ | 21.62 | | | 98,000 | | $ | 21.57 | |
| $28.00-28.00 | | | 50,000 | | | 7.7 | | $ | 28.00 | | | 20,000 | | $ | 28.00 | |
| $42.38-48.88 | | | 70,000 | | | 7.0 | | $ | 43.77 | | | 37,000 | | $ | 45.01 | |
| $70.00-70.00 | | | 15,000 | | | 7.3 | | $ | 70.00 | | | 15,000 | | $ | 70.00 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| $1.33-70.00 | | | 4,163,902 | | | 6.7 | | $ | 12.26 | | | 2,549,774 | | $ | 10.77 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | Transactions involving stock option awards under the Plans during 2000, 2001 and 2002 are summarized as follows: |
| | | Number
of Shares | | Weighted-Average
Exercise Price | |
| | |
|
| |
|
| |
| Balance outstanding, December 31, 1999 | | | 2,313,063 | | $ | 7.86 | |
| | |
|
| | | | |
| 2000: Granted (1) | | | 809,500 | | $ | 30.61 | |
| Cancelled | | | (39,100 | ) | $ | 24.22 | |
| Exercised | | | (206,295 | ) | $ | 5.39 | |
| Expirations | | | (38,724 | ) | $ | 1.33 | |
| | |
|
| | | | |
| Balance outstanding, December 31, 2000 | | | 2,838,444 | | $ | 14.39 | |
| | |
|
| | | | |
| 2001: Granted (1) | | | 906,850 | | $ | 16.20 | |
| Cancelled | | | (192,750 | ) | $ | 54.44 | |
| Exercised | | | (25,967 | ) | $ | 6.39 | |
| Expirations | | | (52,650 | ) | $ | 47.89 | |
| | |
|
| | | | |
| Balance outstanding, December 31, 2001 | | | 3,473,927 | | $ | 12.19 | |
| | |
|
| | | | |
| 2002: Granted (1) | | | 790,500 | | $ | 12.46 | |
| Cancelled | | | (54,500 | ) | $ | 15.61 | |
| Exercised | | | (18,750 | ) | $ | 4.34 | |
| Expirations | | | (27,275 | ) | $ | 9.82 | |
| | |
|
| | | | |
| Balance outstanding, December 31, 2002 | | | 4,163,902 | | $ | 12.26 | |
| | |
|
| | | | |
| | (1) | For 771,500 in 2002, 886,600 in 2001 and 805,500 in 2000, the option exercise price equaled the fair value of the Company’s common stock on the date of grant. For 2002, 2001 and 2000, 19,000, 20,250, and 4,000 options, respectively, were granted, with an exercise price below the fair market value of the Company’s common stock on the date of grant. |
F-22
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | As of December 31, 2000, 2001 and 2002, 1,500,728, 2,073,513 and 2,549,774 options with weighted average exercise prices of $8.91, $9.99 and $10.77, respectively, were exercisable under the Plans. |
| | |
| | As of December 31, 2002, shares available for future grants under the 93 Plan and the 96 Plan amounted to 37,028 and 1,183,050, respectively. |
| | |
| | The Company, prior to the year ended December 31, 1999, granted certain options with exercise prices below the estimated fair value of the Common Stock on the date of grant. Accordingly, the Company is recognizing compensation expense on a pro rata basis over the respective options’ vesting periods for the difference between the estimated fair value of the Common Stock on the date the option was granted and the exercise price (“Unamortized Compensation”). The Unamortized Compensation as of December 31, 2000 and 2001 has been included within stockholders equity. For the years ended December 31, 2000, 2001 and 2002, the annual amortization of Unearned Compensation totaled $428,898, $139,094 and $23,150, respectively. |
| | |
| | During 1993, the Company adopted an Executive Stock Option Plan (the “Executive Plan”), under which a maximum of 750,000 shares of Common Stock, adjusted for stock splits, stock dividends, and other capital adjustments, as defined, are available for stock option awards. Awards issued under the Executive Plan may qualify as incentive stock options (“ISOs”), as defined by the Internal Revenue Code, or may be granted as non-qualified stock options. Under the Executive Plan, the Board may award options to senior executive employees (including officers who may be members of the Board) of the Company, as defined. The Executive Plan will terminate on December 15, 2003; however, any option outstanding as of the termination date shall remain outstanding until such option expires in accordance with the terms of the respective grant. During December 1993, the Board awarded a total of 750,000 stock options under the Executive Plan to one officer, of which 664,774 were non-qualified options (“NQOs”) and 85,226 were ISOs. The NQOs and ISOs have a term of ten years and entitle the officer to purchase an equal number of shares of Common Stock at prices of $5.33 and $5.87 per share, respectively, which represented the estimated fair market value and 110% of the estimated fair market value, respectively, of the Company’s Common Stock at the date of grant, as determined by the Board of Directors. As of December 31, 2002, all options are fully vested and 474,774 remain outstanding. |
| | |
| | The following table summarizes stock option information for the Executive Plan as of December 31, 2002: |
| | | Options Outstanding | | Options Exercisable | |
| | |
| |
| |
Range of
Exercise
Prices | | | Number
Outstanding | | | Weighted-
Average
Remaining
Contractual
Life | | | Weighted-
Average
Exercise
Price | | | Number
Exercisable | | | Weighted-
Exercise Price | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| $5.33 | | | 474,774 | | | 4.9 | | $ | 5.33 | | | 474,774 | | $ | 5.33 | |
| | On May 1, 1998, the Company adopted two employee stock purchase plans (the “Purchase Plans”), the 1998 Employee Stock Purchase Plan (the “Qualified Plan”) and the 1998 Non-Qualified Employee Purchase Plan (the “Non-Qualified”). The Purchase Plans provide for the grant to all employees of options to use up to 25% of their quarterly compensation, as such percentage is determined by the Board of Directors prior to the date of grant, to purchase shares |
F-23
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | of the Common Stock at a price per share equal to the lesser of the fair market value of the Common Stock on the date of grant or 85% of the fair market value on the date of exercise. Options are granted automatically on the first day of each fiscal quarter and expire six months after the date of grants. The Qualified Plan is not available for employees owning more than 5% of the Common Stock and imposes certain other quarterly limitations on the option grants. Options under the Non-Qualified Plan are granted to the extent the option grants are restricted under the Qualified Plan. The Qualified and Non-Qualified Plans provide for the issuance of up to 400,000 and 75,000 shares of Common Stock, respectively. |
| | |
| | Purchases of Common Stock during the years ended December 31, 2000, 2001 and 2002 are summarized as follows: |
| | | Qualified Plan | | Non-Qualified Plan | |
| | |
| |
| |
| | | Shares
Purchased | | Price Range | | Shares
Purchased | | Price Range | |
| | |
|
| |
|
| |
|
| |
|
| |
| 2002 | | | 158,658 | | | $3.55 - $13.90 | | | 7,092 | | | $4.27 - $15.70 | |
| 2001 | | | 64,160 | | | $9.46 - $18.25 | | | 4,069 | | | $9.46 - $16.24 | |
| 2000 | | | 37,245 | | | $12.61 - $60.00 | | | 4,873 | | | $14.125 - $60.00 | |
| | At December 31, 2002, shares reserved for future purchases under the Qualified and Non-Qualified Plans were 107,701 and 55,511, respectively. |
| | |
| | For the purpose of the pro forma calculation, compensation costs for the Plans, the Executive Plan and the Purchase Plans were determined in accordance with SFAS No. 123 (see Note 2), based upon an estimation of the fair value of each option granted under the Plans, the Executive Plan and the Purchase Plans on the date of grant using the Black-Scholes option pricing model. The following assumptions were used in computing the fair value of option grants: expected volatility of 93% in 2000, 86% in 2001 and 79% in 2002, expected lives of 5 years after vesting; zero dividend yield and weighted-average risk-free interest rates of 6.3% in 2000, 4.7% in 2001 and 4.0% in 2002. |
| | |
| | During the years ended December 31, 2000, 2001 and 2002, 805,000, 886,600 and 771,500 options, respectively, whose exercise price was equal to the market price of the stock on the date of grant were granted under the Plans. The weighted average exercise price of those options was $30.68, $16.34 and $12.65, respectively, and the weighted average grant date fair value of those options was $22.92, $11.49 and $8.36, respectively. During the years ended December 31, 2000, 2001 and 2002, 4,000, 20,250 and 19,000 options whose exercise price was less than the market price of the stock on the date of grant were granted under the Plans. The weighted average exercise price of those options was $15.88, $9.93 and $6.74, respectively, and the weighted average grant date fair value was $42.64, $12.10 and $10.70, respectively. |
| | |
10. | Employee Savings Plan |
| | |
| | The Company, during 1993, adopted the provisions of the amended and restated Progenics Pharmaceuticals 401(k) Plan (the “Amended Plan”). The terms of the Amended Plan, among other things, allow eligible employees, as defined, 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, as defined. The Company has agreed to match 100% of those employee contributions that are equal to 5% - 8% of compensation and are made by eligible |
F-24
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | employees to the Amended Plan, as defined. In addition, the Company may also make a discretionary contribution, as defined, each year on behalf of all participants who are non-highly compensated employees, as defined. The Company made matching contributions of approximately $257,000, $317,000 and $413,000 to the Amended Plan for the years ended December 31, 2000, 2001 and 2002, respectively. |
| | |
11. | Income Taxes |
| | |
| | There is no benefit for federal or state income taxes for the years ended December 31, 2002, 2001 and 2000, since the Company has incurred an operating loss and has established a valuation allowance equal to the total deferred tax asset. |
| | |
| | The tax effect of temporary differences, net operating losses and tax credits carryforwards as of December 31, 2001 and 2002 are as follows: |
| | | December 31, | |
| | |
| |
| | | 2001 | | 2002 | |
| Deferred tax assets and valuation allowance: | | | | | | | |
| Net operating loss carry-forwards | | $ | 15,202,535 | | $ | 22,064,826 | |
| Fixed assets | | | 314,150 | | | 386,326 | |
| Deferred charges | | | 1,430,280 | | | 343,726 | |
| Research and experimental tax credit carry-forwards | | | 1,956,378 | | | 2,684,952 | |
| Alternative minimum tax credit carry-forward | | | 211,384 | | | 211,384 | |
| Capital loss carry-forwards | | | | | | 25,575 | |
| Charitable contribution carry-forwards | | | | | | 43,357 | |
| Valuation allowance | | | (19,114,727 | ) | | (25,760,146 | ) |
| | |
|
| |
|
| |
| | | $ | — | | $ | — | |
| | |
|
| |
|
| |
| | The Company does not recognize deferred tax assets considering the history of taxable losses and the uncertainty regarding the Company’s ability to generate sufficient taxable income in the future to utilize these deferred tax assets. |
| | |
| | As of December 31, 2002, the Company has available, for tax purposes, unused net operating loss carry-forwards of approximately $55.4 million which will expire in various years from 2003 to 2022. The Company’s research and experimental tax credit carry-forwards expire in various years from 2003 to 2022. In addition, the Company’s alternative minimum tax credit can be carried forward indefinitely. The capital loss carry-forwards and charitable contribution carry-forwards generated by the Company will expire in various years from 2006 to 2007. Future ownership changes may limit the future utilization of these net operating loss and tax credit carry-forwards as defined by the federal and state tax codes. |
| | |
F-25
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
12. | Net Loss Per Share |
| | |
| | The Company’s basic net loss per share amounts have been computed by dividing net loss by the weighted-average number of common shares outstanding during the period. For the years ended December 31, 2002, 2001 and 2000, the Company reported a net loss and, therefore, common stock equivalents were not included since such inclusion would have been anti-dilutive. The calculations of net loss per share, basic, and diluted are as follows: |
| | | Net Loss
(Numerator) | | Weighted
Average
Common
Shares
(Denominator) | | Per Share
Amount | |
| | |
|
| |
|
| |
|
| |
| 2002: | | | | | | | | | | |
| Basic and diluted | | $ | (20,788,808 | ) | | 12,550,798 | | $ | (1.66 | ) |
| | |
|
| |
|
| |
|
| |
| 2001: | | | | | | | | | | |
| Basic and diluted | | $ | (1,898,150 | ) | | 12,376,056 | | $ | (0.15 | ) |
| | |
|
| |
|
| |
|
| |
| 2000: | | | | | | | | | | |
| Basic and diluted | | $ | (5,917,156 | ) | | 12,137,653 | | $ | (0.49 | ) |
| | |
|
| |
|
| |
|
| |
| | For the years ended December 31, 2000, 2001 and 2002 common stock equivalents which have been excluded from diluted per share amounts because their effect would have been anti-dilutive, include the following: |
| | | 2000 | | 2001 | | 2002 | |
| | |
| |
| |
| |
| | | Number | | Weighted
Average
Exercise
Price | | Number | | Weighted
Average
Exercise
Price | | Number | | Weighted
Average
Exercise
Price | |
| Options and warrants | | | 3,442,455 | | $ | 12.37 | | | 3,685,245 | | $ | 11.86 | | | 4,362,153 | | $ | 8.79 | |
| | | | | | | | | | | | | | | | | | | |
13. | Unaudited Quarterly Results |
| | |
| | Summarized quarterly financial data for the years ended December 31, 2002 and 2001 are as follows: |
| | | Quarter Ended
March 31,
2002
(unaudited) | | Quarter Ended
June 30,
2002
(unaudited) | | Quarter Ended
September 30,
2002
(unaudited) | | Quarter Ended
December 31,
2002
(unaudited) | |
| | |
|
| |
|
| |
|
| |
|
| |
| Revenue | | $ | 2,370,079 | | $ | 2,653,871 | | $ | 2,741,992 | | $ | 2,318,620 | |
| Net loss | | | (2,001,015 | ) | | (5,355,126 | ) | | (6,412,294 | ) | | (7,020,373 | ) |
| Net loss per share | | | | | | | | | | | | | |
| Basic and diluted | | | (0.16 | ) | | (0.43 | ) | | (0.51 | ) | | (0.56 | ) |
F-26
Back to Index to Financial Statements
Progenics Pharmaceuticals, Inc.
Notes to Financial Statements (continued)
| | | Quarter Ended
March 31,
2001
(unaudited | | Quarter Ended
June 30,
2001
(unaudited) | | Quarter Ended
September 31,
2001
(unaudited) | | Quarter Ended
December 31,
2001
(unaudited) | |
| | |
|
| |
|
| |
|
| |
|
| |
| Revenue | | $ | 4,942,305 | | $ | 1,293,916 | | $ | 1,387,229 | | $ | 1,260,189 | |
| Net income (loss) | | | 461,249 | | | 5,250,852 | | | (3,041,838 | ) | | (4,568,413 | ) |
| Net income (loss) per share | | | | | | | | | | | | | |
| Basic | | | 0.04 | | | 0.42 | | | (0.25 | ) | | (0.36 | ) |
| Diluted | | | 0.03 | | | 0.38 | | | (0.25 | ) | | (0.36 | ) |
F-27
Back to Index to Financial Statements
Report of Independent Accountants
To the Board of Directors and Stockholders of
PSMA Development Company LLC:
In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders’ (deficit) equity and of cash flows present fairly, in all material respects, the financial position of PSMA Development Company LLC (the “Company”) (a development stage enterprise) at December 31, 2001 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 and the cumulative period from June 15, 1999 (inception) to December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
| | PricewaterhouseCoopers LLP |
| | |
| New York, New York | |
| February 14, 2003, except for Notes 1 and 3 | |
| as to which the date is March 28, 2003 | |
F-28
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Balance Sheets
| | | December 31, | |
| | |
| |
| | | 2001 | | 2002 | |
| | |
|
| |
|
| |
Assets | | | | | | | |
| Current assets: | | | | | | | |
| Cash | | $ | 1,009,929 | | $ | 289,904 | |
| | |
|
| |
|
| |
Liabilities and stockholders' equity: | | | | | | | |
| Current liabilities: | | | | | | | |
| Account payable to Progenics Pharmaceuticals, a related party | | $ | 351,333 | | $ | 304,154 | |
| | |
|
| |
|
| |
Total liabilities | | | 351,333 | | | 304,154 | |
| | |
|
| |
|
| |
| Capital contributions | | | 6,798,424 | | | 11,398,424 | |
| Contribution receivable, Progenics Pharmaceuticals, Inc. | | | (500,000 | ) | | | |
| Deficit accumulated during the development stage | | | (5,639,828 | ) | | (11,412,674 | ) |
| | |
|
| |
|
| |
Total stockholders' (deficit) equity | | | 658,596 | | | (14,250 | ) |
| | |
|
| |
|
| |
Total liabilities and stockholders' (deficit) equtiy | | $ | 1,009,929 | | $ | 289,904 | |
| | |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-29
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Statements of Operations
| | | Year Ended
December 31, 2000 | | Year Ended
December 31, 2001 | | Year Ended
December 31, 2002 | | Cumulative from
June 15, 1999
(inception) to
December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Revenue: | | | | | | | | | | | | | |
| Interest income | | $ | 96,233 | | $ | 47,111 | | $ | 12,680 | | $ | 228,837 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Expenses: | | | | | | | | | | | | | |
| Research and development | | | 901,835 | | | 2,373,768 | | | 5,138,193 | | | 10,434,250 | |
| General and administrative | | | 96,096 | | | 206,856 | | | 647,333 | | | 1,004,196 | |
| Interest | | | 87,504 | | | 42,748 | | | | | | 203,065 | |
| | |
|
| |
|
| |
|
| |
|
| |
Total expenses | | | 1,085,435 | | | 2,623,372 | | | 5,785,526 | | | 11,641,511 | |
| | |
|
| |
|
| |
|
| |
|
| |
Net Loss | | $ | (989,202 | ) | $ | (2,576,261 | ) | $ | (5,772,846 | ) | $ | (11,412,674 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-30
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Statements of Stockholders’ (Deficit) Equity
For the period from June 15, 1999 (inception) to December 31, 2002, including the period from June 15, 1999 (inception) to December 31, 1999, and the years ended December 31, 2000, 2001 and 2002
| | | Capital
Contributions | | Contribution
Receivable | | Accumulated
Deficit | | Total | | Comprehensive
Loss | |
| Capital contributions | | $ | 2,220,454 | | | | | | | | $ | 2,220,454 | | | | |
| Contribution receivable, Progenics Pharmaceuticals Inc. | | | | | | | | | | | | | | | | |
| License Fee | | | | | $ | (796,934 | ) | | | | | (796,934 | ) | | | |
| Amortization of discount on capital contribution | | | | | | (72,813 | ) | | | | | (72,813 | ) | | | |
| Net loss for the period from June 15, 1999 (inception) to Deecmber 31, 1999 | | | | | | | | $ | (2,074,365 | ) | | (2,074,365 | ) | $ | (2,074,365 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 1999 | | | 2,220,454 | | | (869,747 | ) | | (2,074,365 | ) | | (723,658 | ) | | | |
| Capital contributions | | | 901,835 | | | | | | | | | 901,835 | | | | |
| Amortization of discount on capital contribution | | | | | | (87,504 | ) | | | | | (87,504 | ) | | | |
| Contribution receivable, Progenics Pharmaceuticals Inc. | | | | | | | | | | | | | | | | |
| License Fee | | | | | | 500,000 | | | | | | 500,000 | | | | |
| Net loss for the year ended December 31, 2000 | | | | | | | | | (989,202 | ) | | (989,202 | ) | $ | (989,202 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2000 | | | 3,122,289 | | | (457,251 | ) | | (3,063,567 | ) | | (398,529 | ) | | | |
| Amortization of discount on capital contribution | | | | | | (42,749 | ) | | | | | (42,749 | ) | | | |
| Capital contributions | | | 3,676,135 | | | 500,000 | | | | | | 4,176,135 | | | | |
| Contribution receivable, Progenics Pharmaceuticals Inc. | | | | | | | | | | | | | | | | |
| License Fee | | | | | | (500,000 | ) | | | | | (500,000 | ) | | | |
| Net loss for the year ended December 31, 2001 | | | | | | | | | (2,576,261 | ) | | (2,576,261 | ) | | (2,576,261 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2001 | | | 6,798,424 | | | (500,000 | ) | | (5,639,828 | ) | | 658,596 | | | | |
| Capital contributions | | | 4,600,000 | | | | | | | | | 4,600,000 | | | | |
| Contribution receivable, Progenics Pharmaceuticals Inc. | | | | | | | | | | | | | | | | |
| License Fee | | | | | | 500,000 | | | | | | 500,000 | | | | |
| Net loss for the year ended December 31, 2002 | | | | | | | | | (5,772,846 | ) | | (5,772,846 | ) | | (5,772,846 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2002 | | $ | 11,398,424 | | $ | | | $ | (11,412,674 | ) | $ | (14,250 | ) | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-31
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Statements of Cash Flows
| | | | Year Ended
December 31,
2000 | | | Year Ended
December 31,
2001 | | | Year Ended
December 31,
2002 | | | Cumulative from
June 15, 1999
(Inception) to
December 31,
2002 | |
| Cash flows from operating activities: | | | | | | | | | | | | | |
| Net loss | | $ | (989,202 | ) | $ | (2,576,261 | ) | $ | (5,772,846 | ) | $ | (11,412,674 | ) |
| Amortization of discount on capital contribution | | | (87,504 | ) | | (42,749 | ) | | | | | (203,066 | ) |
| Adjustment to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | |
| (Decrease) increase in accounts payable to Progenics Pharmaceuticals, a related party | | | (316,400 | ) | | (255,925 | ) | | (47,179 | ) | | 304,154 | |
| | |
|
| |
|
| |
|
| |
|
| |
Net cash used in operating activities | | | (1,393,106 | ) | | (2,874,935 | ) | | (5,820,025 | ) | | (11,311,586 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| Cash flows from financing activities: | | | | | | | | | | | | | |
| Capital contributions | | | 901,835 | | | 3,676,135 | | | 4,600,000 | | | 11,398,424 | |
| Contributions receivable from Progenics Pharmaceuticals, Inc. | | | 500,000 | | | | | | 500,000 | | | 203,066 | |
| | |
|
| |
|
| |
|
| |
|
| |
Net cash provided by financing activities | | | 1,401,835 | | | 3,676,135 | | | 5,100,000 | | | 11,601,490 | |
| | |
|
| |
|
| |
|
| |
|
| |
Increase in cash and cash equivalents | | | 8,729 | | | 801,200 | | | (720,025 | ) | | 289,904 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Cash and cash equivalents at beginning of period | | | 200,000 | | | 208,729 | | | 1,009,929 | | | | |
| | |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents at end of period | | $ | 208,729 | | $ | 1,009,929 | | $ | 289,904 | | $ | 289,904 | |
| | |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
F-32
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Notes to Financial Statements
1. | Organization and Business |
| | |
| | PSMA Development Company LLC (the “JV”) was formed on June 15, 1999 as a joint venture between Progenics Pharmaceuticals, Inc. (“Progenics”) and CYTOGEN Corporation (“CYTOGEN”) (each a “Member” and collectively, the “Members”) for the purposes of conducting research, development, manufacturing and marketing of products related to prostate-specific membrane antigen (“PSMA”). Each Member has equal ownership, representation on the JV’s management committee and equal voting rights and rights to profits and losses of the JV, as defined. In connection with the formation of the JV, the Members entered into a series of agreements, including an LLC Agreement, a Licensing Agreement and a Services Agreement (collectively, the “Agreements”) which define the rights and obligations of each Member, including but not limited to the obligations of the Members with respect to future capital contributions and funding of research and development of the JV (see Note 3). The Members must approve an annual budget in order to provide such funding. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002. |
| | |
| | |
2. | Summary of Significant Accounting Policies |
| | |
| | Cash and Cash Equivalents |
| | The JV considers 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. At December 31, 2002, cash consisted of a single interest bearing money market account in a commercial bank. |
| | |
| | Revenue Recognition |
| | Interest income from the investment of excess cash balances is recognized as earned. Interest income from the amortization of the discount on the payments to Cytogen (see Note 3), was recognized ratably over the term of the financial instrument. |
| | |
| | Research and Development |
| | Research and development costs are expenses as incurred. |
| | |
| | Concentrations of Credit Risk |
| | Financial instruments which potentially subject the JV to concentration of credit risk consist of cash and receivables from Members. |
F-33
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Notes to Financial Statements
| | Risks and Uncertainties |
| | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
| | |
| | Income Taxes |
| | The JV’s financial statements do not include a provision (credit) for income taxes. Income taxes, if any, are the liability of the individual Members. |
| | |
3. | Joint Venture Agreements |
| | |
| | In connection with the formation of the JV, the Members entered into a series of agreements, including an LLC Agreement, a Licensing Agreement and a Services Agreement. Under the terms of the LLC Agreement, Progenics was required to pay to the JV $2.0 million in supplemental capital contributions at certain defined dates or upon the achievement of defined milestones by the JV. |
| | |
| | In accordance with the Agreements, Progenics’ $2.0 million supplemental capital contribution was used by the JV to pay a $2.0 million non-refundable licensing fee to CYTOGEN (the “CYTOGEN Payment”). The payment terms of the CYTOGEN Payment were identical to the payment terms of Progenics’ required supplemental capital contribution. Since it was probable that Progenics would be required to fund the $2.0 million supplemental capital contribution and that the JV would be required to pay the licensing fee to CYTOGEN, the JV, upon execution of the Agreements, recognized a receivable and payable from Progenics and CYTOGEN, respectively, for $1,796,934. Such amount represented the present value of the supplemental capital contribution and the CYTOGEN Payment discounted at 10%. The discount on those payments was amortized ratably over the term of the LLC Agreement as interest income and interest expense. During the period from June 15, 1999 (inception) to December 31, 1999, and the years ended December 31, 2000 and 2001, the JV received $1.0 million, $500,000 and $500,000, respectively, from Progenics which was, in turn, paid to CYTOGEN during that same periods. In addition, $72,813, $87,504 and $42,749 of discount was amortized during the period from June 15, 1999 (inception) to December 31, 1999 and the years ended December 31, 2000 and 2001, respectively. |
| | |
| | Under the terms of the Services Agreement, Progenics is engaged in a research program on behalf of the JV. As of March 31, 2002, and through December 31, 2002, Progenics was performing services for the JV under a month-to-month extension of the Services Agreement. At December 31, 2002, and through March 28, 2003, the Members were negotiating the terms of a new Services Agreement. During the year ended December 31, 2002, research and development expenses paid to Progenics for services under the Services Agreement were approximately $5.3 million. Progenics was required to fund the cost of the research up to $3.0 million and was compensated based on agreed upon terms. As of December 31, 2001, Progenics had surpassed the $3.0 million in funding for research costs. Accordingly, each Member then made capital contributions of $900,000 and $2.3 million in the years ended December 31, 2001 and 2002, respectively, to fund future research costs and will share such costs equally. The level of commitment by the Members to fund the JV is based upon an annual budget that is approved by both parties. As of March 28, 2003, the Members were in the process of negotiating the 2003 annual budget for the JV and have committed to the JV that the operating budget for 2003 will be no less than the total expenses as set forth on the Statement of Operations for the JV for the year ended December 31, 2002. All inventions made by Progenics in connection with the Services Agreement will be assigned to the JV for its use and benefit. |
F-34
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Notes to Financial Statements
| | The Agreements terminate upon the last to expire of the patents granted by the Members to the JV or upon breach by a Member which is not cured within 60 days of written notice. |
| | |
4. | Collaboration Agreements |
| | | |
| | i. | AlphaVax Human Vaccines, Inc. |
| | | |
| | | In September 2001, the JV entered into a worldwide exclusive license agreement (the “AVX Agreement”) with AlphaVax Human Vaccines, Inc., to use the AlphaVax Replicon Vector (ArVTM) system (the “AVRV System”) to conduct internal research and development to create a therapeutic prostate cancer vaccine incorporating the JV’s proprietary PSMA antigen. In consideration for the license, the JV paid a nonrefundable, noncreditable license fee and is obligated to pay additional payments upon the occurrence of certain defined milestones associated with the development and commercialization program for products incorporating the AVRV System (the “Products”). In addition, the JV is required to pay an annual maintenance fee until the commencement of commercial sales of Products and then royalties based on net sales of Products, subject to certain adjustments, exceptions and set off rights of the JV under defined circumstances. The AVX Agreement may be terminated, after an opportunity to cure, by AlphaVax under specified circumstances that include, among other things, the JV’s failure to achieve certain milestones which may be revised under certain circumstances. If not terminated early, the AVX Agreement continues until the later of (i) the expiration of the AVRV System patents or the invalidation of such patents or (ii) seven years after the First Commercial Sale, as defined, of a Product. The JV has the right to terminate the AVX Agreement upon 30 days prior written notice. The termination of the AVX Agreement could have a material adverse effect on the business of the JV. Although the JV intends to use its best efforts to comply with the terms of the AVX Agreement, there can be no assurances that the agreement will not be terminated. |
| | | |
| | ii. | Abgenix, Inc. |
| | | |
| | | In February 2001, the JV entered into an exclusive licensing agreement (the “ABX Agreement”) with Abgenix, Inc. (“Abgenix”), to use Abgenix’ XenoMouse technology (the “XenoMouse Technology”) for generating human antibodies to the JV’s proprietary PSMA antigen. In consideration for the license, the JV paid a nonrefundable, noncreditable license fee and is obligated to pay additional license fees on each of the first three anniversary dates and milestone payments upon the occurrence of certain defined milestones associated with the development and commercialization program for products incorporating an antibody generated utilizing the XenoMouse Technology (the “Antibody Products”). In addition, the JV is required to pay royalties based upon net sales of the Antibody Products, subject to certain set off rights of the JV under defined circumstances. The ABX Agreement may, upon a material breach, be terminated, after an opportunity to cure, by either party upon 30 days prior written notice. If not terminated early, the ABX Agreement continues until the later of the expiration of the XenoMouse Technology patents or defined period. The JV has the right to terminate the ABX Agreement upon 30 days prior written notice. The termination of the ABX Agreement could have a material adverse effect on the business of the JV. Although the JV intends to use its best efforts to comply with the terms of the ABX Agreement, there can be no assurances that the agreement will not be terminated. |
| | | |
| | In connection with all the agreements discussed above, the JV has recognized contractual payments, including license fees, which are included in research and development expenses, |
F-35
Back to Index to Financial Statements
PSMA Development Company L.L.C.
(a development stage enterprise)
Notes to Financial Statements
| | totaling approximately $400,000 and $200,000 for the years ended December 31, 2001 and 2002, respectively. In addition, as of December 31, 2002, remaining payments associated with milestones and defined objectives with respect to the above agreements total approximately $13.8 million. Future annual minimum royalties under the agreements described in (i) and (ii) above, are not significant. |
F-36
Back to Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | | PROGENICS PHARMACEUTICALS, INC. |
| | | By: /s/ Paul J. Maddon, M.D., PH.D.
Paul J. Maddon, M.D., PH.D.
Chairman of the Board and Chief
Executive Officer |
Date: March 31, 2003
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 | | | | Date |
| | | | | |
/s/ Paul J. Maddon, M.D., PH.D.
Paul J. Maddon, M.D., PH.D. | | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | | March 31, 2003 |
| | | | | |
/s/ Ronald J. Prentki
Ronald J. Prentki | | President and Director | | March 31, 2003 |
| | | | | |
/s/ Robert A. McKinney
Robert A. McKinney | | Vice President, Finance and Operations and Treasurer (Principal) Financial and Accounting Officer) | | March 31, 2003 |
| | | | | |
/s/ Charles A. Baker
Charles A. Baker | | Director | | March 31, 2003 |
| | | | | |
/s/ Mark F. Dalton
Mark F. Dalton | | Director | | March 31, 2003 |
| | | | | |
/s/ Stephen P. Goff, PH.D.
Stephen P. Goff, PH.D. | | Director | | March 31, 2003 |
| | | | | |
/s/ Kurt W. Briner
Kurt W. Briner | | Director | | March 31, 2003 |
| | | | | |
/s/ Paul F. Jacobson
Paul F. Jacobson | | Director | | March 31, 2003 |
| | | | | |
/s/ David A. Scheinberg, M.D., PH.D.
David A. Scheinberg, M.D., PH.D.
| | Director | | March 31, 2003 |
S-1
Back to Contents
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Paul J. Maddon, M.D., Ph.D., certify that:
1. I have reviewed this annual report on Form 10-K of Progenics Pharmaceuticals, Inc.;
| 1. | I have reviewed this annual report on Form 10-K of Progenics Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| | a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, if any, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| | b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| | c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
| | a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| | b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | | /s/ Paul J. Maddon |
| Date: March 31, 2003 | | Paul J. Maddon, M.D., Ph.D. |
| | | Chairman & Chief Executive Officer |
S-2
Back to Contents
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Robert A. McKinney, certify that:
| 1. | I have reviewed this annual report on Form 10-Q of Progenics Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| | a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, if any, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| | b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| | c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
| | a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and |
| | b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | | /s/ Robert A. McKinney |
| Date: March 31, 2003 | | Robert A. McKinney |
| | | Vice President, Finance & Administration |
S-3
Back to Contents
EXHIBIT INDEX
| Exhibit Number | | | Description | |
| | |
| | | *3.1 | | | Certificate of Incorporation of the Registrant, as amended. | |
| *3.2 | | | By-laws of the Registrant | |
| *4.1 | | | Specimen Certificate for Common Stock, $.0013 par value per share, of the Registrant | |
| *10.1 | | | Form of Registration Rights Agreement | |
| *10.2 | | | 1989 Non-Qualified Stock Option Plan ++ | |
| *10.3 | | | 1993 Stock Option Plan, as amended ++ | |
| *10.4 | | | 1993 Executive Stock Option Plan ++ | |
| ******10.5 | | | Amended and Restated 1996 Stock Incentive Plan ++ | |
| *10.6 | | | Form of Indemnification Agreement ++ | |
| ****10.7 | | | Employment Agreement dated December 22, 1998 between the Registrant and Dr. Paul J. Maddon ++ | |
| *10.8 | | | Letter dated August 25, 1994 between the Registrant and Dr. Robert J. Israel ++ | |
| ***10.9 | | | Employment Agreement dated as of June 10, 1998 between the Registrant and Ronald J. Prentki, as amended by Amendment No. 1 to the Employment Agreement dated as of October 8, 1998 ++ | |
| *+10.10 | | | gp120 Supply Agreement dated July 19, 1995 between the Registrant and E. I. DuPont DeNemours and Company, as amended, October 27, 1995 | |
| *+10.11 | | | sCD4 Supply Agreement dated June 27, 1995 between the Registrant and E. I. DuPont De Nemours and Company | |
| *+10.12 | | | Supply Agreement dated February 8, 1996 between the Registrant and Intracel Corporation Stock Purchase Agreement dated February 11, 1994 between the Registrant and Christopher Ben | |
| *+10.13 | | | License Agreement dated November 17, 1994 between the Registrant and Sloan-Kettering Institute for Cancer Research | |
| *+10.14 | | | Clinical Trial Agreement dated December 12, 1994 between the Registrant and Sloan-Kettering Institute for Cancer Research | |
| *+10.15 | | | QS-21 License and Supply Agreement dated August 31, 1995 between the Registrant and Cambridge Biotech Corporation (now known as Aquila Biopharmaceuticals, Inc.) | |
| *+10.16 | | | gp120 Sublicense Agreement dated March 17, 1995 between the Registrant and Cambridge Biotech Corporation (now known as Aquila Biopharmaceuticals, Inc.) | |
| *+10.17 | | | Cooperative Research and Development Agreement dated February 25, 1993 between the Registrant and the Centers for Disease Control and Prevention | |
| *+10.18 | | | License Agreement dated March 1, 1989, as amended by a Letter Agreement dated March 1, 1989 and as amended by a Letter Agreement dated October 22, 1996 between the Registrant and the Trustees of Columbia University | |
| *+10.19 | | | License Agreement dated June 25, 1996 between the Registrant and The Regents of the University of California | |
| *+10.20 | | | KLH Supply Agreement dated July 1, 1996 between the Registrant and PerImmune, Inc. | |
| *+10.21 | | | sCD4 Supply Agreement dated November 3, 1993 between the Registrant and E.I. DuPont DeNemours and Company | |
| ********10.22 | | | Amended and Restated Sublease dated June 6, 2000 between the Registrant and Crompton Corporation | |
| *+10.23 | | | Joint Development and Master License Agreement dated as of April 15, 1997 between Bristol-Myers Squibb Company and the Registrant | |
| *+10.24 | | | Sublicense Agreement with respect to the Sloan-Kettering License Agreement dated as of April 15, 1997 between Bristol-Myers Squibb Company and the Registrant | |
| *+10.25 | | | Sublicense Agreement with respect to The Regents’ License Agreement dated April 15, 1997 between Bristol-Myers Squibb Company and the Registrant | |
| *+10.26 | | | Sublicense Agreement with respect to Aquila Biopharmaceuticals, Inc. License and Supply Agreement dated April 15, 1997 between Bristol-Myers Squibb Company and the Registrant | |
| *+10.27 | | | Letter Agreement dated as of April 15, 1997 among Bristol-Myers Squibb Company, Registrant and the Sloan-Kettering Institute for Cancer Research | |
E-1
Back to Contents
EXHIBIT INDEX
| Exhibit Number | | | Description | |
| | |
| | | *10.28 | | | Letter agreement dated as of April 15, 1997 among Bristol-Myers Squibb Company, Registrant and The Regents of the University of California | |
| *+10.29 | | | Letter agreement dated as of April 15, 1997 among Bristol-Myers Squibb Company, Registrant and Aquila Biopharmaceuticals, Inc. | |
| *10.30 | | | Form of Warrant to purchase Series C Preferred Stock | |
| *10.31 | | | Form of Warrant issued to Tudor BVI Futures, Ltd. and Tudor Global Trading LLC | |
| **+10.32 | | | Heads of Agreement, effective as of December 23, 1997, among F. Hoffman-La Roche Ltd., Hoffmann-La Roche Inc. and Registrant | |
| *****+10.33 | | | Development and License Agreement effective as of April 30, 1999, between Protein Design Labs, Inc. and the Registrant | |
| *****+10.34 | | | PSMA/PSMP License Agreement dated June 15, 1999, by and among the Registrant, Cytogen Corporation and PSMA Development Company LLC | |
| *****+10.35 | | | Limited Liability Company Agreement of PSMA Development Company, dated June 15, 1999, by and among the Registrant, Cytogen Corporation and PSMA Development Company LLC | |
| *******10.36 | | | Director Stock Option Plan ++ | |
| *********10.37 | | | Employment Agreement dated as of May 16, 2001 between the Registrant and Ronald J. Prentki ++ | |
| ¥10.38 | | | Exclusive Sublicense Agreement, dated September 21, 2001, between the Registrant and UR Labs, Inc. | |
| 23.1 | | | Consent of PricewaterhouseCoopers LLP (regarding the Registrant) | |
| 23.2 | | | Consent of PricewaterhouseCoopers LLP (regarding PSMA Development Company LLC) | |
| 99.1 | | | Certification of Paul J. Maddon, M.D., Ph.D., Chairman and Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 | |
| 99.2 | | | Certification of Robert A. McKinney, Vice President, Finance and Operations (Principal Finance Accounting Officer) of the Registrant pursuant to 18 U.S.C. Section 1350 | |
| | | |
| * | | Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, Commission File No. 333-13627, and incorporated by reference herein. |
| | | |
| ** | | Previously filed as an exhibit to the Company’s Current Report on Form 8-K dated February 6, 1998, and incorporated by reference herein. |
| | | |
| *** | | Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, and incorporated by reference herein. |
| | | |
| **** | | Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated by reference herein. |
| | | |
| ***** | | Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, and incorporated by reference herein. |
| | | |
| ****** | | Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, and incorporated by reference herein. |
| | | |
| ******* | | Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated by reference herein. |
| | | |
| ******** | | Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000, incorporated by reference herein. |
| | | |
| ********* | | Previously filed as an exhibit to the Company’s Quarterly Report on From 10-Q for the quarter period ended September 30, 2001, and incorporated by reference herein. |
| | | |
| + | | Confidential treatment granted as to certain portions, which portions are omitted and filed separately with the Commission. |
| | | |
| ++ | | Management contract or compensatory plan or arrangement. |
| | | |
| ¥ | | Confidential treatment has been requested as to certain portions, which portions are omitted and filed separately with the Commission. |
| | | |
E-2
