UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-23143
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PROGENICS PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
_______________
Delaware 13-3379479
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
777 Old Saw Mill River Road
Tarrytown, New York 10591
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(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (914) 789-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0013 par
value per share
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 23, 1999 (based on the closing price of $10.75 on such
date as reported on the Nasdaq National Market) was approximately $62
million.(1) As of March 23, 1999, 9,397,545 shares of Common Stock, $.0013
par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III-Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's Annual Meeting of Stockholders, to be filed not later
than 120 days after the close of the Registrant's fiscal year.
_________________
(1)Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers, directors and five percent shareholders of the
Registrant, without conceding that all such persons are "affiliates" of the
Registrant for purposes of the Federal securities laws.
Table of Contents
Page
----
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 32
Item 3. Legal Proceedings............................................... 32
Item 4. Submission of Matters to a Vote of Security Holders............. 32
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters............................................. 33
Item 6. Selected Financial Data......................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 38
Item 8. Financial Statements and Supplementary Data..................... 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 67
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 67
Item 11. Executive Compensation.......................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 67
Item 13. Certain Relationships and Related Transactions.................. 67
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.. 67
SIGNATURES............................................................... 68
EXHIBIT INDEX............................................................ 69
i
PART I
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from those anticipated in these forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
uncertainties associated with product development, the risk that clinical
trials will not commence when planned, the risks and uncertainties associated
with dependence upon the actions of the Company's corporate, academic and
other collaborators and of government regulatory agencies, the risk that
products that appeared promising in early clinical trials do not demonstrate
efficacy in larger-scale clinical trials and the other risks described in this
report, including those described under the caption "Business-Risk Factors."
Progenics files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any document
Progenics files at the SEC's Public Reference Rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can also request copies of the documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. These SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov.
In addition, certain information about Progenics may be obtained from the
Company's web site at http://www.progenics.com.
Item 1. Business
GENERAL OVERVIEW
Background
Progenics Pharmaceuticals, Inc. ("Progenics" or the "Company") is a
biopharmaceutical company focusing on the development and commercialization of
innovative products for the treatment and prevention of cancer, viral and
other life-threatening diseases. The Company applies its immunology expertise
to develop biopharmaceuticals that induce an immune response or that mimic
natural immunity in order to fight cancers, such as malignant melanoma, and
viral diseases, such as human immunodeficiency virus ("HIV") infection.
Progenics' most advanced product candidate, GMK, is a therapeutic vaccine that
is currently undergoing two pivotal Phase III clinical trials for the
treatment of melanoma, a deadly form of skin cancer. Progenics' second
vaccine product candidate, MGV, is being developed for the treatment of
various cancers. A Phase I/II clinical trial for MGV was completed in 1998.
Based on its participation in the discoveries of two major receptors for HIV,
the Company is engaged in research and development of therapeutic products
designed to block entry of HIV into human immune system cells. Progenics
commenced Phase I/II clinical trials of one of these product candidates, PRO
542, in 1997, one of which was completed in 1998, and plans to initiate Phase
I/II clinical trials of another product candidate, PRO 367, in 1999. The
Company has entered into a collaboration with Bristol-Myers Squibb Company
("BMS") to develop and commercialize GMK and MGV. The Company has also
entered into a collaboration with the Roche Group of Basel, Switzerland
("Roche") to discover and develop novel small-molecule HIV therapeutics which
target the recently identified fusion co-receptors of the virus.
Cancer Therapeutics
The Company's GMK and MGV cancer therapeutics are based on proprietary
ganglioside conjugate vaccine technology designed to stimulate the immune
system to destroy cancer cells. This technology is exclusively licensed by
the Company from Memorial Sloan-Kettering Cancer Center ("Sloan-Kettering").
GMK is designed to prevent recurrence of melanoma in patients who are at risk
of relapse after surgery. GMK is composed of a ganglioside antigen abundant
in melanoma cells, conjugated to an immunogenic carrier protein and combined
with an adjuvant (an immunological stimulator). In August 1996, the Company
commenced the first of three planned pivotal, randomized, multicenter Phase
III clinical trials of GMK. This trial is being conducted in the United
States by cooperative cancer research groups supported by the National Cancer
Institute ("NCI") and had enrolled over 50% of its targeted number of patients
by early 1998. The two additional Phase III clinical trials of GMK will be
conducted in a number of countries outside of the United States. One of these
trials commenced enrollment of patients in June 1997. The other trial is
expected to commence in 1999 and will be conducted in Europe by the European
Organization for Research and Treatment of Cancer ("EORTC").
MGV is being developed to treat a wide range of cancers, including
colorectal cancer, lymphoma, small cell lung cancer, sarcoma, gastric cancer
and neuroblastoma. The American Cancer Society estimated that these cancers
would have an aggregate incidence in the United States of over 260,000 during
1998. The Company believes that MGV, which incorporates two ganglioside
antigens that are abundant in these and other types of cancer cells, may be an
attractive adjunctive therapy to prevent recurrence after the cancer is
removed surgically or reduced by chemotherapy or radiation therapy. The
Company completed Phase I/II clinical trials with MGV at Sloan-Kettering in
1998.
In July 1997, the Company and BMS entered into a Joint Development and
Master License Agreement (the "BMS License Agreement") and related agreements
under which Progenics granted BMS an exclusive worldwide license to GMK and
MGV. BMS made cash payments to the Company of $13.3 million and agreed to
make further payments of up to $61.5 million upon the achievement of specified
milestones. In June 1998 Progenics announced that it had received a payment
under its collaboration with BMS for achieving a clinical milestone in the
development of GMK. In addition, BMS is required to fund continued clinical
development of GMK and MGV and to pay royalties on any product sales.
HIV Therapeutics
The currently approved HIV therapeutics, protease inhibitors and reverse
transcriptase inhibitors, have persistent problems of viral resistance and
drug toxicity. In contrast to these therapeutics, which inhibit viral
replication after HIV has infected a cell, the Company's products are designed
to prevent infection of healthy immune system cells by targeting specific
extracellular receptors and the viral protein that binds to these receptors.
Binding of the virus to the CD4 receptor and to the CCR5 or CXCR4 co-receptor
is necessary for attachment, fusion and entry of the virus into the cell. The
Company believes that, because the portion of the viral protein that binds to
CD4 and to the fusion co-receptors is highly conserved, the likelihood of drug
resistance to the Company's product candidates through viral mutation is
minimized. Additionally, the molecular structures of CD4, CCR5 and CXCR4 do
not vary from person to person, making these receptors particularly appealing
targets for drug development. The Company is engaged in research and
development programs targeting both the CD4 receptor and the fusion
co-receptors CCR5 and CXCR4.
Progenics' PRO 542 and PRO 367 product candidates utilize the Company's
proprietary CD4 receptor technology. Progenics is developing PRO 542 to
selectively target HIV and prevent it from infecting healthy cells by binding
to the sites on the virus that are required for entry into the cell. PRO 542
is being developed as an immunotherapy to treat asymptomatic HIV-positive
individuals and has been shown in vitro to neutralize a wide range of HIV
clinical strains. The Company initiated Phase I/II clinical trials of PRO 542
in September 1997, one of which was completed in 1998, and has established a
collaboration with Genzyme Transgenics Corporation ("Genzyme Transgenics")
designed to enable commercial scale production by producing PRO 542 in the
milk of transgenic animals.
Progenics is developing PRO 367 as a therapeutic agent designed to kill
HIV-infected cells. PRO 367 consists of an antibody-like molecule linked to a
therapeutic radioisotope and is designed to bind to and destroy HIV-infected
cells by delivering a lethal dose of radiation. The Company plans to begin
Phase I/II clinical trials of PRO 367 in 1999.
In December 1997 the Company entered into a collaboration with Roche to
discover and develop novel small-molecule HIV therapeutics that target the
fusion co-receptors, including CCR5 and CXCR4. Under the terms of the
collaboration, Roche has received from Progenics an exclusive worldwide
license to certain aspects of the Company's HIV co-receptor technology. Roche
is obligated to make up-front and milestone payments, fund research for up to
three years and pay royalties on the sale of any products commercialized as a
result of the collaboration. In addition, in June 1998 the Company entered
into a collaboration with Pharmacopeia, Inc. ("Pharmacopeia") to discover
small-molecule HIV therapeutics that block the attachment of the virus to CD4.
2
The Company recently announced that it was developing monoclonal
antibodies capable of blocking virus-cell fusion. One of these antibodies,
designated PRO 140, inhibited HIV fusion at concentrations that had no
apparent effect on the normal function of CCR5.
The Human Immune System
The human immune system protects the body from disease by specifically
recognizing and destroying foreign invaders, including viruses and bacteria.
In addition, the immune system is capable of recognizing and eliminating from
the body abnormal cells, such as cancer cells and cells infected with viruses
and bacteria. White blood cells, particularly B and T lymphocytes, have the
ability to recognize antigens made by these infectious agents and abnormal
cells and react to them. For example, B lymphocytes produce antibodies that
recognize specific antigens. Antibodies can bind to these antigens and
neutralize or eliminate infectious agents and cancer cells. Vaccines are
designed to induce the production of antibodies against antigens on infectious
agents and abnormal cells and thereby protect the body from illness. Although
vaccines have historically been used prophylactically to prevent the
contraction of an infectious disease, more recently vaccines are also being
developed as therapeutics to fight ongoing diseases. In addition, genetic
engineering techniques have enabled the production of antibodies or antibody-
like molecules in the laboratory. These genetically designed antibody
molecules are intended to mimic the body's own immune response in situations
where the immune response has been suppressed or otherwise compromised.
Product Development
The Company applies its expertise in immunology to the development of
therapeutic biopharmaceuticals that use components of the immune system,
particularly antibodies, to fight diseases. The Company's two principal
programs are directed towards cancer and HIV. In the case of cancer, the
Company is developing vaccine products that are designed to induce specific
antibody responses to cancer antigens. In the case of HIV, the Company is
developing therapeutic products by genetically engineering molecules that
function as antibodies and selectively target HIV and HIV-infected cells for
neutralization or destruction. The Company also is actively engaged in
research and discovery of compounds based on the HIV receptor, CD4, and HIV
co-receptors, including CCR5 and CXCR4, and their roles in viral attachment,
fusion and entry. In addition, the Company recently announced the
commencement of a research and development program to develop DHA, an
antioxidant and chemical precursor to vitamin C, as a therapeutic for free
radical damage caused by autoimmune diseases, vascular catastrophic events and
other states of oxidative stress.
3
The following table summarizes the status of the principal development
programs, product candidates and products of the Company and identifies any
related corporate collaborator:
Corporate
Program/Product Indication/Use Status(1) Collaborator
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Cancer Therapeutics
GMK Vaccine for Phase III BMS
melanoma
MGV Vaccine for Phase II expected BMS
colorectal to commence in
cancer, lymphoma, 1999
small cell lung
cancer, sarcoma,
gastric cancer
and neuroblastoma
HIV Therapeutics
PRO 542 HIV therapy Phase I/II --
PRO 367 HIV therapy Phase I/II --
expected to
commence in 1999
PRO 140 HIV therapy Preclinical --
HIV Co-receptor/
fusion:
Small-molecule HIV therapy Research Roche
drugs
Monoclonal HIV therapy Research --
antibodies
HIV attachment HIV therapy Research AHP(2)
Pharmacopeia
ProVax HIV vaccine Research --
Other Therapeutics
DHA Alzheimer's disease, Preclinical --
stroke and other
central nervous
system diseases
Assays and Reagents
ONCOTECT GM Clinical assay for In clinical --
cancer prognosis investigational
use
sCD4, gp120 Research reagents On market DuPont de
Nemours &
Company,
Intracel
Corporation
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(1) "Research" means initial research related to specific molecular targets,
synthesis of new chemical entities, assay development and/or screening for
the identification of lead compounds.
"Preclinical" means that a lead compound is undergoing toxicology,
formulation and other testing in preparation for trials.
Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
"Phase I": Evaluation of safety.
"Phase II": Evaluation of safety, dosage and efficacy.
"Phase III": Larger scale evaluation of safety and efficacy potentially
requiring larger patient numbers, depending on the clinical indication for
which marketing approval is sought.
"In clinical investigational use" means being used by the Company to
measure antibody levels of patients in clinical trials.
See "Business-General-Government Regulation" and "-Assays and Reagents."
(2) "AHP" means the Wyeth-Ayerst Research Division of American Home Products
Corporation.
4
Cancer Therapeutics
Cancer is a set of different diseases, each of which is characterized by
aberrations in cell growth and differentiation. The establishment and spread
of a tumor is a function of its growth characteristics and its ability to
suppress or evade the body's normal defenses, including surveillance and
elimination of cancer cells by the immune system. Eradication of malignant
cells which can metastasize (i.e., spread) to vital organs, leading to death,
is central to the effective treatment of cancer.
Despite recent advances in treatment, therapies for many types of cancer
continue to suffer from serious limitations. The principal therapies for
cancer have historically been surgery, radiation and chemotherapy. A
significant drawback to conventional anti-cancer therapy is that occult (i.e.,
hidden) or residual disease is difficult or impossible to eliminate fully,
which can lead to relapse. Surgery may be used to remove primary masses of
some solid tumors; however, it cannot be used to remove occult disease.
Conventional treatment with combination chemotherapy and radiation may not be
capable of eradicating cancers completely because of inadequate potency at the
tumor site resulting from limitations on drug or radiation doses due to
potential side-effects to healthy tissues. Moreover, while more recently
introduced biological drugs, such as interferons, have in some cases
represented an improvement over traditional cytotoxic therapy, they have
proven effective only on a limited basis and only in certain types of cancer
and have adverse side effects.
Because of the inability of traditional cancer therapies to address
adequately occult and residual cancers, non-specific toxicities and limited
potency, a significant need exists for new therapeutic products. To address
this demand, cancer vaccines are now being developed to stimulate the natural
defense mechanisms of the immune system to fight cancer. Unlike traditional
infectious disease vaccines that are used to prevent infection in the general
population, most cancer vaccines are therapeutic, meaning that they are being
developed to prevent recurrence of cancer in people whose cancer is in
remission following treatment by conventional therapies (including surgical
removal). In some cases, cancer vaccines are also being designed for use in
the prevention of cancer in individuals who are at high risk for the disease.
A major challenge in cancer vaccine development results from the fact
that the natural human immune response generally does not produce sufficient
antibodies to fight cancer cells because the immune system often does not
recognize the difference between normal cells and cancer cells. Consequently,
a primary objective in the development of cancer vaccines is to train the
immune system to recognize cancer cells as a threat. If this can be achieved
and the immune system can produce sufficient antibodies to the cancer, then
the recurrence of the cancer may be prevented. Most cancer vaccines of
parties other than the Company that are in clinical development consist of
dead cancer cells or crude extracts from cancer cells. Unlike the Company's
vaccine technology, these approaches are limited by their inability to
identify the active components of the vaccine or measure specific immune
responses.
Progenics' Technology: Ganglioside Conjugate Vaccines
Progenics' cancer vaccine program involves the use of purified
gangliosides as cancer antigens. Gangliosides are chemically-defined
molecules composed of carbohydrate and lipid components. Certain gangliosides
are usually found in low amounts in normal human tissue, but are abundant in
certain cancers, such as melanoma, colorectal cancer, lymphoma, small cell
lung cancer, sarcoma, gastric cancer and neuroblastoma.
Because gangliosides alone do not normally trigger an immune response in
humans, Progenics attaches gangliosides to large, highly immunogenic carrier
proteins to form "conjugate" vaccines designed to trigger specific immune
responses to ganglioside antigens. To further augment this immune response,
Progenics adds an immunological stimulator, known as an "adjuvant," to its
ganglioside-carrier protein conjugate.
The Company's ganglioside conjugate vaccines stimulate the immune system
to produce specific antibodies to ganglioside antigens. These antibodies have
been shown in vitro to recognize and destroy cancer cells. Based on these
tests and the clinical trial results described below, the Company believes
that vaccination of cancer patients with ganglioside conjugate vaccines will
delay or prevent recurrence of cancer and prolong overall survival.
5
The Company's cancer vaccines use known amounts of chemically-defined
antigens, not dead cancer cells or crude extracts from cancer cells. As a
result, Progenics is able to measure specific immune responses to the
gangliosides in its vaccines. The Company also believes that there is a
reduced likelihood of variability in its products as compared to vaccines
which are prepared from dead cancer cells or crude extracts from cancer cells
or which require complicated manufacturing processes.
GMK: Therapeutic Vaccine for Malignant Melanoma
Progenics' most advanced product under development is GMK, a proprietary
therapeutic vaccine for melanoma that is currently in pivotal Phase III
clinical trials. The Company is collaborating with BMS on this program. GMK
is the first cancer vaccine based on a defined cancer antigen to enter Phase
III clinical trials. GMK is designed to prevent recurrence of melanoma in
patients who are at risk of relapse after surgery. GMK is composed of the
ganglioside GM2 conjugated to the carrier protein keyhole limpet hemocyanin
("KLH") and combined with the adjuvant QS-21. QS-21 is the lead compound in
the Stimulon_ family of adjuvants developed and owned by Aquila
Biopharmaceuticals Inc. ("Aquila").
Target Market
Melanoma is a highly lethal cancer of the skin cells that produce the
pigment melanin. In early stages melanoma is limited to the skin, but in
later stages it spreads to the lungs, liver, brain and other organs. The
Company estimates that there are 300,000 melanoma patients in the United
States today. The American Cancer Society estimates that 44,200 patients in
the United States will be newly diagnosed with melanoma in 1999. Melanoma has
one of the fastest growing incidence rates in the United States. Projections
indicate that for Americans living in the year 2000 the lifetime risk of
developing melanoma is one in 75, compared to one in 135 in 1987 and one in
250 in 1980. Increased exposure to the ultraviolet rays of the sun may be an
important factor contributing to the increase in new cases of melanoma.
Melanoma patients are categorized according to the following staging
system:
Melanoma Staging
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Stage I Stage II Stage III Stage IV
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Lesion less than lesion greater metastasis to distant
1.5 mm thickness than 1.5 mm regional draining metastasis
thickness lymph nodes
No apparent local spread from regional spread
metastasis primary cancer from primary
site cancer site
GMK is designed for the treatment of patients with Stage II or Stage III
melanoma. It is estimated that these patients comprise approximately 50% of
the total number of melanoma patients and, accordingly, the Company estimates
that there are currently 150,000 Stage II and III melanoma patients in the
United States. According to the American Cancer Society, an estimated 60% to
80% of Stage III melanoma patients will experience recurrence of their cancer
and die within five years after surgery.
Current Therapies
Standard treatment for melanoma patients includes surgical removal of the
cancer. Thereafter, therapy varies depending on the stage of the disease.
For Stage I and II melanoma patients, treatment generally consists of close
monitoring for recurrence. The only approved treatment for Stage III melanoma
patients is high-dose alpha interferon. In a recently reported study, the
median recurrence-free survival period after surgery for patients treated with
high-dose alpha interferon was 20 months versus 12 months for patients who
received no treatment. In addition, the median overall survival period after
surgery was 46 months for the treated group versus 34 months for the untreated
group. However, treatment with high-dose alpha interferon causes substantial
toxicities, requires an intensive treatment over twelve months (intravenous
injections five days a week for the first month followed by subcutaneous
injections three times a week for the remaining eleven months) and costs about
$35,000 per year.
6
Other approaches for treatment of Stage II or III melanoma patients are
currently under investigation, but none has been approved for marketing.
These experimental therapies include chemotherapy, low-dose alpha interferon
and other vaccines.
Clinical Trials
GMK entered pivotal Phase III clinical trials in the United States in
August 1996. In addition, Progenics plans to conduct two international Phase
III clinical trials of GMK, one of which commenced enrollment of patients in
June 1997 and the other of which is expected to commence in 1999. GMK is
administered in the studies on an out-patient basis by 12 subcutaneous
injections over a two-year period.
The ongoing U.S. Phase III clinical trial compares GMK with high-dose
alpha interferon in Stage IIb (advanced Stage II) and Stage III melanoma
patients who have undergone surgery but are at high risk for recurrence. This
randomized trial, which is expected to enroll 850 patients and had enrolled
over 50% of these patients by early 1998, is being conducted nationally by the
Eastern Cooperative Oncology Group ("ECOG") in conjunction with the Southwest
Oncology Group ("SWOG") and other major cancer centers, cooperative cancer
research groups, hospitals and clinics. ECOG and SWOG are leading cooperative
cancer research groups supported by the NCI and are comprised of several
hundred participating hospitals and clinics, primarily in the United States.
The primary endpoint of the trial is to compare the recurrence of melanoma in
patients receiving GMK versus in patients receiving high-dose alpha
interferon. The study will also compare quality of life and overall survival
of patients in both groups.
The second Phase III clinical trial is a randomized double-blind,
placebo-controlled study in Stage IIb and Stage III melanoma patients who have
undergone surgery but are at high risk for recurrence. This trial, which
enrolled its first patients in June 1997, will be conducted by major cancer
centers, hospitals and clinics in Europe, Australia, New Zealand, South Africa
and South America. In the United Kingdom, the study will be conducted by the
Institute of Cancer Research ("ICR") of the United Kingdom, a major
government-sponsored cancer research organization. The primary endpoint of
the trial is to compare the recurrence of melanoma in patients receiving GMK
versus in patients receiving placebo. The study will also compare overall
survival of patients in both groups.
The third Phase III clinical trial will be a randomized study exclusively
in Stage IIa (early Stage II) melanoma patients who have undergone surgery but
are at intermediate risk for recurrence. This trial, which the Company
expects will commence in 1999, will be conducted in Europe by the EORTC, the
major cooperative cancer research group in Europe. Patients will be
randomized to receive either GMK or observation with no treatment. The
primary endpoint of the trial is to compare the recurrence of melanoma in
patients receiving GMK versus in patients receiving observation with no
treatment. The study will also compare overall survival of patients in both
groups.
A predecessor of GMK, called GM2-BCG, which combined GM2 ganglioside with
the adjuvant BCG, underwent clinical testing at Sloan-Kettering in the late
1980s. In a double-blind, randomized Phase II study in 122 Stage III melanoma
patients, subjects in the treated group received GM2-BCG for six months after
surgery; subjects in the control group received the same regimen with BCG
alone. The median recurrence-free survival period after surgery for patients
treated with GM2-BCG was 33 months versus 17 months for the patients in the
control group. In addition, the median overall survival period after surgery
for patients in the treated group was 70 months versus 30 months for patients
in the control group. Approximately 85% of treated patients developed
antibodies to GM2 ganglioside. The presence of these antibodies significantly
correlated with improved recurrence-free and overall survival of patients.
7
Phase I/II clinical trials of GMK under institutional new drug
applications ("INDs") were conducted at Sloan-Kettering. In these studies,
approximately 120 patients, most of whom had Stage III melanoma, were treated
with GMK. All patients receiving GMK at the dose level being used in the
current Phase III trials of GMK developed antibodies to GM2 ganglioside, which
killed melanoma cells. Patients treated with GMK had levels of antibody to
GM2 ganglioside that were on average four times higher and also were longer
lasting than in patients treated with GM2-BCG in the GM2-BCG Phase II trial.
In addition, GMK was well tolerated by all patients in these studies, and no
clinically significant side effects attributable to the vaccine were observed.
MGV: Therapeutic Vaccine for Certain Cancers
Progenics' second ganglioside conjugate vaccine in development, MGV, is a
proprietary therapeutic vaccine for cancers which express GD2 or GM2
gangliosides. These cancers include colorectal cancer, lymphoma, small cell
lung cancer, sarcoma, gastric cancer and neuroblastoma. The Company is
collaborating with BMS on this program. MGV has three components: (i) GM2-KLH
(GM2 ganglioside conjugated to KLH); (ii) GD2-KLH (GD2 ganglioside conjugated
to KLH); and (iii) QS-21 adjuvant. MGV is designed to prevent recurrence of
cancer and prolong overall survival of patients after their cancer has been
removed by surgery or reduced by chemotherapy or radiation therapy.
Target Market
MGV targets cancers that the American Cancer Society estimated would have
an aggregate incidence in the United States of over 260,000 during 1998. The
American Cancer Society also estimated that over 135,000 persons would die
from these targeted cancers, representing nearly 25% of all expected deaths
from any cancer during 1998.
Clinical Trials
MGV completed a Phase I/II clinical trial in 1998 under an institutional
IND at Sloan-Kettering. The primary objectives of the study were to establish
the safety of MGV and the ability of the vaccine to induce specific immune
responses to both GD2 and GM2 gangliosides in patients with different cancer
types. In addition, a goal of the study was to optimize the ratio of GD2 and
GM2 gangliosides in MGV to be used in future clinical trials.
In this clinical trial, 31 patients with high-risk melanoma and sarcoma
were immunized with MGV over a period of nine months. Patients were randomly
assigned to five groups receiving a fixed dose of GM2-KLH and QS-21 adjuvant
and one of a number of escalating doses of GD2-KLH. This study showed that
the combination of GM2-KLH/GD2-KLH/QS-21 could produce antibodies to GM2 and
GD2 and was well-tolerated. The Company and BMS intend to commence Phase II
clinical trials of MGV in 1999.
HIV Therapeutics
HIV infection causes a slowly progressive deterioration of the immune
system which results in AIDS. AIDS is characterized by a general collapse of
the immune system leading to a wasting syndrome, frequent opportunistic
infections, rare forms of cancer, central nervous system degeneration and
eventual death. HIV infection is unusual in that individuals testing positive
for the virus can survive for many years without symptoms of the disease.
There are three major routes of transmission of the virus: sexual contact,
exposure to HIV-contaminated blood or blood products and mother-to-child
transmission.
HIV specifically infects cells that have the CD4 receptor on their
surface ("CD4+"). CD4+ cells are critical components of the immune system and
include T lymphocytes, monocytes, macrophages and dendritic cells. The
deleterious effects of HIV are largely due to the replication of the virus in
these cells and the resulting dysfunction and destruction of these cells.
8
HIV-positive individuals display both antibodies and other immune system
responses which are specific to the virus. However, it is clear that these
natural immune system responses do not provide adequate long-term protection.
There are two reasons why these natural responses are inadequate. First, as
described above, the CD4+ T lymphocytes required to mount an effective immune
response against HIV are destroyed, leaving the immune system too weak to
eliminate the virus. Second, HIV displays a remarkable degree of variability
as a result of high rates of mutation that permit different strains of the
virus to escape the immune system response and progressively replicate
throughout the body.
Viral infection involves the binding of the virus to cells, viral entry
into those cells and, ultimately, the commandeering of the host cells'
reproductive machinery, which permits replication of the viral genetic
information and the generation of new copies of the virus. The Company's
scientists and their collaborators have made important discoveries in
understanding how HIV enters human cells and initiates viral replication. In
the 1980s, Company scientists in collaboration with researchers at Columbia
University, the ICR and the Centers for Disease Control and Prevention ("CDC")
demonstrated that the initial step of HIV infection involves the specific
attachment of the virus to the CD4 receptor on the surface of human immune
system cells. These researchers also showed that the gp120 glycoprotein
located on the HIV envelope binds with high affinity to the CD4 receptor.
Although these researchers demonstrated that CD4 was necessary for HIV
attachment, this step is not sufficient to enable the virus to enter the cell
and initiate viral replication.
Company scientists in collaboration with researchers at the Aaron Diamond
AIDS Research Center ("ADARC") described in an article in Nature the discovery
of a co-receptor for HIV on the surface of human immune system cells. This
co-receptor, CCR5, enables fusion of HIV with the cell membrane after binding
of the virus to the CD4 receptor. This fusion step results in entry of the
viral genetic information into the cell and subsequent viral replication.
Company scientists in collaboration with researchers at ADARC demonstrated
that it is the gp120 glycoprotein that binds to the CCR5 co-receptor as well
as to the CD4 receptor. By mutational analysis, these scientists localized
the gp120 binding site on CCR5 to a discrete region at one end of the
molecule.
In 1998, a member of the Company's Scientific Advisory Board, Wayne A.
Hendrickson, Ph.D., reported a high-resolution x-ray crystal structure of the
gp120:CD4 complex. The Company believes that this structural information
reveals several important features of the gp120:CD4 complex and provides, for
the first time, a rational basis for discovering compounds that block this
interaction.
Progenics' HIV Receptor Technologies
Based on the Company's participation in the discoveries of two major
receptors for HIV, Progenics is pursuing several approaches in the research
and development of products designed to block entry of HIV into human immune
system cells. The Company's PRO 542 and PRO 367 product candidates and its
viral attachment programs are based on the CD4 receptor while its HIV co-
receptor fusion program is based on recently discovered co-receptors, CCR5 and
CXCR4.
Because HIV must first attach to the CD4 receptor to infect human cells,
the Company believes that the part of the gp120 glycoprotein that attaches to
the CD4 receptor must remain constant across all strains of the virus. The
gp120 glycoprotein is located on the exterior of both HIV and HIV-infected
cells. PRO 542 and PRO 367 incorporate a part of the CD4 receptor into
genetically engineered molecules that function like antibodies and are
designed to bind specifically to the gp120 glycoprotein of HIV or HIV-infected
cells. In in vitro tests, these molecules have demonstrated the ability to
bind with high affinity to gp120 glycoproteins from a wide range of HIV
strains, including the strains most prevalent in the United States and the
rest of the world. Because this technology is targeted to a part of HIV that
is believed to be necessary for the virus to enter cells and not to mutate,
the Company believes that its technology may address the obstacles presented
by the high mutation rate of the virus.
PRO 542 and PRO 367 employ this technology in different ways. PRO 542 is
designed to bind to the gp120 glycoprotein located on the virus itself,
neutralizing the virus and thereby preventing it from infecting healthy cells.
PRO 367 is designed to bind to the gp120 glycoprotein located on the exterior
of HIV-infected cells and destroy those cells by delivering a lethal dose of
radiation.
9
The Company recently announced the development of a panel of monoclonal
antibodies that have been shown to block the ability of HIV to infect cells
isolated from healthy individuals by inhibiting virus-cell fusion. One of
these monoclonal antibodies, designated PRO 140, inhibited HIV fusion at
concentrations that had no apparent effect on the normal function of CCR5.
Progenics also is applying its HIV technology in two programs designed to
use the Company's proprietary screening assays to identify and develop
potential HIV therapeutics. In its co-receptor/fusion program, the Company is
using its fusion assays to identify compounds that inhibit the interaction
between HIV and HIV co-receptors, including CCR5 and CXCR4, thereby blocking
viral fusion and entry. In the Company's HIV attachment program, Progenics is
using its proprietary HIV attachment assay to identify small-molecule
compounds that inhibit the interaction between HIV and CD4, thereby blocking
viral attachment.
Target Market
Progenics' therapeutic product candidates are designed primarily for use
in asymptomatic HIV-positive individuals. Accordingly, the target population
for these products is patients who are aware of their infection but do not yet
have AIDS. Although there are few signs of disease in an HIV-positive
individual during the asymptomatic period, the virus is replicating in the
body by infecting healthy cells. The World Health Organization ("WHO")
estimated that as of the end of 1998, 1.4 million people in North America and
Western Europe and 33.4 million people worldwide were infected with HIV.
According to WHO, approximately 74,000 people in North America and Western
Europe were newly infected with HIV during 1998.
Current Therapies
At present, two classes of products have received marketing approval from
the U.S. Food and Drug Administration (the "FDA") for the treatment of HIV
infection and AIDS: reverse transcriptase inhibitors and protease inhibitors.
Both types of drugs are inhibitors of viral enzymes and have shown efficacy in
reducing the concentration of HIV in the blood and prolonging asymptomatic
periods in HIV-positive individuals, especially when administered in
combination.
While combination therapy slows the progression of disease, it is not a
cure. HIV's rapid mutation rate results in the development of viral strains
that are resistant to reverse transcriptase and protease inhibitors. The
potential for resistance is exacerbated by interruptions in dosing which lead
to lower drug levels and permit increased viral replication. Non-compliance
is common in patients on combination therapies as these drug regimens require
more than a dozen tablets to be taken at specific times each day. An
additional problem is that currently approved drugs exhibit substantial
toxicities in many patients, affecting a variety of organs and tissues,
including the peripheral nervous system and gastrointestinal tract. These
toxicities often result in patients interrupting or discontinuing therapy.
PRO 542: HIV Therapy
Progenics is developing PRO 542 for the treatment of HIV infection. PRO
542 is a proprietary antibody-like product with four binding sites for the
gp120 glycoprotein on HIV. PRO 542 is designed to neutralize HIV through one
of two mechanisms: (i) binding to the gp120 glycoprotein and thereby
preventing infection of healthy cells; or (ii) binding to and detaching the
gp120 glycoprotein from the virus.
In in vitro and ex vivo tests conducted by Progenics in collaboration
with scientists at ADARC and the CDC, PRO 542 neutralized a wide variety of
clinical strains of HIV as well as viruses in the plasma of HIV-positive
individuals. In comparative in vitro studies at ADARC using a panel of
neutralizing antibodies to HIV, PRO 542 was found to be more potent and
broadly neutralizing than the antibodies to which it was compared. In further
studies at ADARC, PRO 542 protected severe combined immune deficient ("SCID")
mice transplanted with human peripheral blood lymphocytes against infection by
the three HIV strains tested, including strains of the virus isolated from
HIV-positive individuals.
10
Progenics initiated two dose-escalation Phase I/II clinical trials of PRO
542 in September 1997. Both trials are designed to measure the safety,
pharmacokinetics, immunogenicity and antiviral activity of PRO 542. The first
study was conducted in HIV-positive adult patients at Mount Sinai Medical
Center in New York City. Findings indicated peak and one-week serum
concentrations of PRO 542 compared favorably with preclinical models,
approximating drug levels previously shown to neutralize clinical HIV strains
in vitro. Data from this trial indicate that PRO 542 was well-tolerated and
non-immunogenic in all patients treated. No significant drug-related adverse
events were observed at any dose level. PRO 542 serum concentrations remained
above HIV inhibitory levels for greater than one week. The Company believes
that these results support expanded clinical testing of this agent as a
nontoxic therapy for HIV infection.
The second dose-escalation Phase I/II clinical trial of PRO 542 is being
conducted in HIV-positive children at Baylor College of Medicine in Houston,
the University of California at San Francisco and the University of
Pennsylvania by the AIDS Clinical Trials Group, ("ACTG"), a leading
cooperative HIV research group supported by the National Institute of Allergy
and Infectious Diseases ("NIAID").
In September 1997, the Company entered into a collaboration agreement
with Genzyme Transgenics with the objective of developing a transgenic source
of PRO 542 using Genzyme Transgenics' proprietary technology. This
collaboration is designed to result in commercial-scale manufacture by
expressing PRO 542 in the milk of transgenic goats. By establishing this
production arrangement, Progenics can potentially advance PRO 542's
development through Phase III clinical trials without the need for a
commercialization collaboration.
PRO 367: HIV Therapy
Progenics is developing PRO 367 as a therapeutic agent designed to
destroy HIV-infected cells. PRO 367 is composed of a proprietary antibody-like
molecule with two binding sites for the gp120 glycoprotein linked to a
therapeutic radioisotope. PRO 367 is designed to specifically bind with high
affinity to the gp120 glycoprotein on HIV-infected cells and to destroy these
cells by delivering a lethal dose of radiation. The Company plans to initiate
dose-escalation Phase I/II clinical trials of PRO 367 in 1999 subject to
obtaining necessary regulatory clearances. The study is expected to assess
safety, pharmacokinetics, biodistribution, immunogenicity and antiviral
effects of PRO 367 in HIV-positive adult patients.
In in vitro tests, PRO 367 specifically bound with high affinity to the
gp120 glycoprotein on the cell surface. In addition, a pilot Phase I clinical
trial in AIDS patients of a trace-labeled precursor of PRO 367 was conducted
under an institutional IND at Sloan-Kettering. This trial assessed the safety
and pharmacology of the compound with low doses of iodine-131. The compound
was well tolerated by all patients, no clinically significant side effects
attributable to the compound were observed and the compound exhibited suitable
pharmacokinetics for further development.
HIV Co-Receptor/Fusion: HIV Therapy
The Company's first application of its HIV co-receptor technology is
through the use of its proprietary fusion assays. These assays model fusion
of HIV with human cells rapidly, automatically, sensitively and without the
use of infectious virus. The Company has entered into a collaboration with
Roche to use these assays to discover and develop small-molecule HIV
therapeutics that target the fusion coreceptors, including CCR5 and CXCR4.
Under the terms of the collaboration, Roche has received from Progenics an
exclusive worldwide license to its HIV co-receptor technology. Roche is
obligated to make up-front and milestone payments, fund research for up to
three years and pay royalties on the sale of any products commercialized as a
result of the collaboration.
11
CCR5 and CXCR4 belong to a larger family of cellular receptors, known as
7-transmembrane G-protein-coupled receptors. These receptors have been
successfully exploited as drug targets by commercialized pharmaceuticals
addressing a wide range of human diseases. Additionally, studies have
indicated that a genetic mutation that disables the CCR5 co-receptor will
prevent HIV infection without compromising immune function. For these
reasons, the Company believes that its co-receptor/fusion technology offers
significant commercial opportunities.
The Company recently announced the development of a panel of anti-CCR5
monoclonal antibodies created at Progenics and evaluated in collaboration with
ADARC. These antibodies blocked the ability of HIV to infect cells isolated
from healthy individuals by inhibiting virus-cell fusion, an approach not
targeted by current HIV therapies. One monoclonal antibody, designated PRO
140, inhibited HIV at concentrations that had no apparent effect on the normal
function of CCR5. These properties were correlated with PRO 140's ability to
bind to a distinct site on CCR5.
HIV Attachment Drug Screen: HIV Therapy
As part of a collaborative research project with the Wyeth-Ayerst
Research Division of American Home Products Corporation ("AHP"), Progenics is
using its proprietary HIV attachment assay to identify small-molecule
compounds that inhibit attachment of HIV to the CD4 receptor. This assay has
been used in a high-throughput screening program, and the compounds discovered
are undergoing additional studies by the Company and AHP to evaluate further
their antiviral activity.
In June 1998 the Company entered into a collaboration with Pharmacopeia
to discover small-molecule HIV therapeutics that block the attachment of the
virus to its primary cellular receptor, CD4. Pursuant to this collaboration,
Progenics has provided proprietary technologies for high-throughput screening
of compounds that inhibit the attachment of HIV to the CD4 receptor.
Pharmacopeia has contributed proprietary combinatorial chemistry libraries of
small-molecule drug candidates and medicinal chemistry expertise.
ProVax: HIV Vaccine
Progenics is conducting research with respect to its ProVax vaccine, a
vaccine candidate which it believes may be useful as a preventative or a
therapeutic treatment for HIV-positive individuals. Progenics is currently
performing government-funded research and development of the ProVax vaccine in
collaboration with ADARC, the Southwest Foundation for Biomedical Research in
San Antonio and the University of Oklahoma Medical Center.
Other Therapeutics - DHA
In February 1999 Progenics licensed from Sloan-Kettering patent rights
and technology relating to dehydroascorbic acid ("DHA"), a derivative of
vitamin C. Progenics has obtained exclusive world-wide rights to use DHA for
treatment of disease involving oxidative damage to tissue, including tissues
of the central nervous system.
Antioxidants are compounds that act as scavengers of free radicals --
highly unstable molecules that play a role in certain diseases that damage
tissue. Studies have shown that antioxidants can slow the progression of
degenerative neurological diseases, such as Alzheimer's disease. Vitamin C
is a potent antioxidant, but does not easily cross from the circulatory system
into the brain. David W. Golde, M.D., Physician-in-Chief of Memorial
Hospital, and his colleagues at Sloan-Kettering have shown that DHA readily
crosses the blood-brain barrier and, once in the brain, is converted into
vitamin C. As a result of these properties, the Company believes that DHA is
a promising drug candidate for a broad range of neurodegenerative diseases
caused by oxidative stress. The Company has initiated a research and
development program to pursue these applications.
12
Assays and Reagents
Through its immunology expertise, Progenics has developed certain assays,
in addition to its HIV attachment and fusion assays, which are used both
independently and in collaboration with partners, as well as certain reagents
which are being sold for research use only. These assays are described below.
ONCOTECT GM
Progenics has developed ONCOTECT GM, a clinical assay for assessing
prognosis in patients with melanoma and other cancers. ONCOTECT GM measures
the levels of antibody to GM2 ganglioside in the blood. In clinical trials of
a therapeutic vaccine for melanoma, the presence of these antibodies
significantly correlated with improved recurrence-free and overall survival of
patients. The Company is currently using ONCOTECT GM in its cancer vaccine
clinical trials.
Research Reagents: sCD4 and gp120
Progenics manufactures the research reagents sCD4 and gp120 which it
sells to DuPont de Nemours & Company ("DuPont") and Intracel Corporation
("Intracel") for resale. DuPont markets and sells gp120 and sCD4 under both
the Progenics and the DuPont names. Intracel markets and sells gp120 and sCD4
under both the Progenics and Intracel names. These products are sold
worldwide for research use.
Corporate Collaborations
Bristol-Myers Squibb Company
In July 1997, the Company and BMS entered into the BMS License Agreement.
Pursuant to the BMS License Agreement, the Company granted to BMS an
exclusive, worldwide license to make, have made, use, sell, have sold and
develop GMK and MGV and any other product to which Progenics has rights that
include the GM2 or GD2 ganglioside antigens and are used for the treatment or
prevention of human cancer. BMS is entitled under the BMS License Agreement
to grant sublicenses, subject to certain restrictions.
Pursuant to the BMS License Agreement and the related sublicense
agreements (collectively, the "BMS Agreements"), BMS has made certain payments
to the Company and is required to make milestone payments and pay royalties on
sales of licensed products. In July 1997, BMS paid the Company approximately
$13.3 million, representing (i) $11.5 million as reimbursement for expenses
previously incurred by Progenics in the development of GMK and MGV and
licensing fees and (ii) $1.8 million as reimbursement of the Company's
clinical development costs for the period from April 15, 1997 to September 30,
1997. BMS is also required to make payments of up to $61.5 million upon
achievement of specified milestones relating to the development and regulatory
approval of GMK, MGV or other products that include the GM2 or GD2 ganglioside
antigens. In June 1998, the Company announced that it had received the first
such payment for achieving a clinical milestone in the development of GMK.
The amount of these milestone payments will depend on the product candidate
achieving the specified milestone and, with respect to MGV, the indications
for which it is developed. BMS is also required to pay royalties on any sale
of licensed products and to subsidize ongoing development, clinical trials and
regulatory activities of GMK and MGV pursuant to plans agreed to by the
parties. There can be no assurance that the Company will receive additional
milestone or royalty payments from BMS or that funding for the GMK or MGV
programs will not be curtailed or terminated.
In connection with the BMS License Agreement, the Company granted to BMS
sublicenses to the technology and other rights licensed to the Company from
each of Sloan-Kettering, The Regents of the University of California (the
"Regents") and Aquila under the licenses with these entities discussed under
"--Licenses." These sublicenses are exclusive as to the Sloan-Kettering and
the Regents sublicenses and non-exclusive as to the Aquila sublicense and are
intended, in general, to make available to BMS the technology licensed by the
Company from these entities and used to make GMK and MGV. BMS is entitled
under these sublicenses to grant further sublicenses, subject to certain
restrictions.
In connection with payments made by BMS to the Company under the BMS
Agreements, the Company made certain payments to licensors as an inducement to
these licensors to enter into agreements with the Company and BMS amending
certain provisions of the prime licenses and granting to BMS certain related
rights. Future payments made by BMS to the Company under the BMS Agreements
also trigger payment obligations to these licensors. See "--Licenses."
13
The BMS Agreements terminate at various times related, in general, to the
expiration or abandonment of the related patents or to the first commercial
sale of products. The agreements can also be terminated by either party upon
a material, uncured breach by the other party. BMS has the further right to
terminate the BMS License Agreement (including its funding and milestone
obligations) as to specified licensed products at specified times.
Roche Group
In December 1997, the Company entered into a collaboration agreement with
Roche to discover and develop novel HIV therapeutics that target the recently
identified fusion co-receptors of the virus (the "Roche Agreement"). This
collaboration, among other things, provides for Roche to apply its library of
small-molecule compounds to original screening assays of the Company to
identify inhibitors of the interaction between HIV co-receptors and HIV.
Under the terms of the Roche Agreement, Progenics has granted to Roche a
license covering products to which Progenics has rights or that are developed
as a result of the collaboration and which have been identified as, or
developed for the purpose of, inhibiting the interaction between chemokine
receptors that act as HIV co-receptors, including CCR5 and CXCR4, and HIV,
which interaction results in fusion of HIV with cells. The license does not
extend to certain classes of molecules, as to which Progenics has retained
rights. Pursuant to this license, Roche has an exclusive worldwide right to
develop, make, have made, use, sell, offer to sell and import any covered
products for the therapy of HIV infection. Subject to certain restrictions,
Roche retains the right to grant sublicenses under the Roche Agreement.
Pursuant to the Roche Agreement, Roche is obligated to make up-front and
milestone payments, fund research for up to three years and pay royalties on
the sale of any products commercialized as a result of the collaboration. The
Company is also entitled to certain contingent licensing rights. In June
1998, the Company announced that it had received the first such payment for
achieving a milestone in its HIV drug discovery program.
The collaboration remains in full force, subject to the exceptions
identified below, until the expiration of all obligations to pay royalties
pursuant to any of the licenses granted therein. The Roche Agreement can be
terminated by either party upon a material, uncured breach by the other party.
Roche has the further right to terminate the Roche Agreement or the
collaboration contemplated under the Roche Agreement at specified times;
however, in either case, Roche will not be relieved of certain minimum
research funding obligations.
This collaboration is in the early stage of drug discovery. There can
be no assurance that the Company will receive additional milestone or any
royalty payments from Roche, that funding for the program contemplated by the
collaboration will not be curtailed or terminated or that any contingent
licensing rights will be granted.
Licenses
The Company is a party to license arrangements under which it has
obtained rights to use certain technologies in its cancer and HIV programs, as
well as certain other human therapeutics. Set forth below is a summary of
these licenses.
14
The Company is party to a license agreement with Sloan-Kettering under
which the Company obtained the worldwide, exclusive rights to certain
technology relating to ganglioside conjugate vaccines, including GMK and MGV,
and their use to treat or prevent cancer. The Sloan-Kettering license
terminates upon the expiration of the last of the licensed patents or 15 years
from the date of the first commercial sale of a licensed product pursuant to
the agreement, whichever is later. In addition to patent applications, the
Sloan-Kettering license includes the exclusive rights to use certain relevant
technical information and know-how. A number of Sloan-Kettering
physician-scientists also serve as consultants to the Company.
The Company is party to a license agreement with the Regents under which
the Company obtained the exclusive rights to an issued U.S. patent covering
certain ganglioside conjugate vaccines. The license agreement terminates upon
the expiration of the patent.
The Company is party to a license agreement with Columbia University
under which the Company has obtained exclusive, worldwide rights to certain
technology and materials relating to CD4 and its use to treat or prevent HIV
infection. The license agreement will terminate upon the expiration of the
last of the licensed patents.
The Company has entered into a license and supply agreement with Aquila
pursuant to which Aquila agreed to supply the Company with all of its
requirements for the QS-21 adjuvant for use in certain ganglioside-based
cancer vaccines, including GMK and MGV. QS-21 is the lead compound in the
Stimulon_ family of adjuvants developed and owned by Aquila. The license
terminates upon the expiration of the last of the licensed patents.
The Company is a party to a license agreement with Sloan-Kettering under
which the Company obtained an exclusive, worldwide license to certain patent
rights relating to DHA. The license continues for 20 years or to the end of
the term for which the patent rights are granted.
The licenses to which the Company is a party impose various milestone,
commercialization, sublicensing, royalty and other payment, insurance,
indemnification and other obligations on the Company and are subject to
certain reservations of rights. Failure by the Company to comply with these
requirements could result in the termination of the applicable agreement,
which could have a material adverse effect on the Company.
In connection with the BMS License Agreement, the Company granted to BMS
sublicenses to the technology and other rights licensed to the Company from
each of Sloan-Kettering, the Regents and Aquila under the licenses with these
entities described above. See "-Corporate Collaborations--Bristol-Myers
Squibb Company."
Government Grants And Contracts
Through December 31, 1998, the Company had been awarded government grants
aggregating approximately $5,407,000 under the Small Business Innovation
Research ("SBIR") program of the NIH for the Company's commercial development
of PRO 542, PRO 367, ProVax vaccine and fusion assays. Through December 31,
1998 the Company had recognized approximately $3,386,000 of such amount as
revenue. In the third quarter of 1998, the Company was awarded a new grant
for $2.7 million from the NIH for the continued development of PRO 542. In
addition, during 1995, the Company was awarded a $812,000 multi-year grant
under a contract with the Department of Defense for work related to Pro Vax
vaccine. Work under this contract was completed in May 1998.
In general, under the terms of these grants the Company has, subject to
certain rights of the government described below, all right, title and
interest to all patents, copyrights and data pertaining to any product
developed. However, under existing regulations, the government receives a
royalty-free license for federal government use with respect to patents
developed by grant recipients. In addition, the government may, in certain
circumstances, require the Company to license technology resulting from the
funded projects to third parties and may require that the Company manufacture
substantially all of the products resulting from a particular grant in the
United States.
15
The government's obligation to make payments under these grants is
subject to appropriation by the United States Congress for funding in each
such year. Moreover, it is possible that Congress or the government agencies
that administer these government research programs will determine to scale
back these programs or terminate them or that the government will award future
grants to competitors of the Company instead of the Company. In addition,
while Progenics intends to pursue additional government grants related to its
areas of research and development, there can be no assurances that the Company
will be awarded any such grants in the future or that any amounts derived
therefrom will not be less than those received to date.
In September 1997, the Company was awarded a two-year, protein
manufacturing contract from the NIH; this contract was subsequently amended to
provide for a total term of three years at $2,426,870. Through December 31,
1998, the Company had recognized approximately $955,000 of such amount as
revenue.
Patents and Proprietary Technology
Progenics' policy is to protect its proprietary technology, and the
Company considers the protection of such rights to be important to its
business. In addition to seeking U.S. patent protection for many of its
inventions, the Company generally files patent applications in Canada, Japan,
Western European countries and additional foreign countries on a selective
basis in order to protect the inventions deemed to be important to the
development of its foreign business.
Under a license agreement with Sloan-Kettering, Progenics obtained
worldwide, exclusive rights to certain technology relating to ganglioside
conjugate vaccines, including GMK and MGV, and their use to treat or prevent
cancer. This technology is the subject of a patent application filed by
Sloan-Kettering in the U.S. and 25 foreign countries claiming composition of
matter and methods of production and use of certain ganglioside conjugate
vaccines for the treatment or prevention of human cancer.
Under a license agreement with Columbia University, Progenics obtained
worldwide, exclusive rights to certain technology relating to CD4 and its use
to treat or prevent HIV infection. This technology is the subject of issued
U.S. and European patents and several related U.S. and foreign patent
applications filed by Columbia University. The issued patents and the patent
applications claim composition of matter and methods of production and use of
certain CD4-based products for the treatment or prevention of HIV infection.
Progenics has also filed a number of U.S. and foreign patent applications on
its HIV attachment assay technology, its technology relating to PRO 542 and
PRO 367, its PROVax technology and clinical uses of these technologies.
Progenics has also filed a number of U.S. and foreign patent applications (one
of which is owned jointly with ADARC) relating to the discovery of an HIV
co-receptor, CCR5.
Under a License Agreement with Sloan-Kettering, Progenics obtained
worldwide, exclusive rights to certain technology relating to dehydroascorbic
acid and its use to increase the concentration of vitamin C in tissues,
including the brain for treating neurodegenerative and neurovascular diseases.
This technology is the subject of a patent application filed by Sloan-
Kettering in the United States and as an international application claiming
methods for increasing the vitamin C concentration in the cells of a subject
by administering to the subject dehydroascorbic acid.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade has resulted in certain changes to United States patent laws
that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer
a period of seventeen years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate twenty
years from the earliest effective filing date of the application. Because the
time from filing to issuance of patent applications is often more than three
years, a twenty-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position.
16
Government Regulation
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the preclinical and clinical testing, safety,
effectiveness, approval, manufacture, labeling, marketing, export, storage,
record keeping, advertising, and promotion of the Company's products. None of
the Company's product candidates have received marketing or other approval
from the FDA or any other similar regulatory authority.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The
process of obtaining approvals from the FDA can be costly, time consuming and
subject to unanticipated delays. There can be no assurance that approvals of
the Company's proposed products, processes, or facilities will be granted on a
timely basis, or at all. Any failure to obtain or delay in obtaining such
approvals would adversely affect the ability of the Company to market its
proposed products. Moreover, even if regulatory approval is granted, such
approval may include significant limitations on indicated uses for which a
product could be marketed.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) preclinical
laboratory and animal tests, (ii) submission to the FDA of an IND, which must
become effective before clinical trials may begin, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the product for its intended indication, (iv) submission to the FDA of a
marketing application and (v) FDA review of the marketing application in order
to determine, among other things, whether the product is safe and effective
for its intended uses.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information about a product's pharmacology
and toxicology and to identify any safety problems that would preclude testing
in humans. Products must generally be manufactured according to current Good
Manufacturing Practices ("cGMP"), and preclinical safety tests must be
conducted by laboratories that comply with FDA regulations regarding good
laboratory practices. The results of the preclinical tests are submitted to
the FDA as part of an IND. An IND is a submission which the sponsor of a
clinical trial of an investigational new drug must make to the FDA and which
must become effective before clinical trials may commence. The IND submission
must include, among other things, a description of the sponsor's
investigational plan; protocols for each planned study; chemistry,
manufacturing, and control information; pharmacology and toxicology
information; and a summary of previous human experience with the
investigational drug. Unless the FDA objects to, or makes comments or raises
questions concerning, an IND, the IND will become effective 30 days following
its receipt by the FDA, and initial clinical studies may begin, although
companies often obtain affirmative FDA approval before beginning such studies.
There can be no assurance that submission of an IND will result in FDA
authorization to commence clinical trials.
A New Drug Application ("NDA") is an application to the FDA to market a
new drug. The NDA must contain, among other things, information on chemistry,
manufacturing, and controls; nonclinical pharmacology and toxicology; human
pharmacokinetics and bioavailability; and clinical data. The new drug may not
be marketed in the United States until the FDA has approved the NDA.
A Biologic License Application ("BLA") is an application to the FDA to
market a biological product. The PLA must contain, among other things, data
derived from nonclinical laboratory and clinical studies which demonstrate
that the product meets prescribed standards of safety, purity and potency, and
a full description of manufacturing methods. The biological product may not
be marketed in the United States until a biologic license is issued.
Clinical trials involve the administration of the investigational new
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with
the FDA's Good Clinical Practice requirements under protocols that detail,
among other things, the objectives of the study, the parameters to be used to
monitor safety, and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an Institutional Review Board ("IRB").
The IRB will consider, among other things, ethical factors, the safety of
human subjects, the possible liability of the institution and the informed
consent disclosure which must be made to participants in the clinical trial.
17
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. During Phase I, when the drug is initially
administered to human subjects, the product is tested for safety, dosage
tolerance, absorption, metabolism, distribution and excretion. Phase II
involves studies in a limited patient population to (i) evaluate preliminarily
the efficacy of the product for specific, targeted indications, (ii) determine
dosage tolerance and optimal dosage and (iii) identify possible adverse
effects and safety risks. When a new product is found to have an effect and
to have an acceptable safety profile in Phase II evaluation, Phase III trials
are undertaken in order to further evaluate clinical efficacy and to further
test for safety within an expanded patient population. The FDA may suspend
clinical trials at any point in this process if it concludes that clinical
subjects are being exposed to an unacceptable health risk.
The results of the preclinical studies and clinical studies, the
chemistry and manufacturing data, and the proposed labeling, among other
things, are submitted to the FDA in the form of an NDA or BLA, approval of
which must be obtained prior to commencement of commercial sales. The FDA may
refuse to accept the NDA or BLA for filing if certain administrative and
content criteria are not satisfied, and even after accepting the NDA or BLA
for review, the FDA may require additional testing or information before
approval of the NDA or BLA. The Company's analysis of the results of its
clinical studies is subject to review and interpretation by the FDA, which may
differ from the Company's analysis. There can be no assurance that the
Company's data or its interpretation of data will be accepted by the FDA. In
any event, the FDA must deny an NDA or BLA if applicable regulatory
requirements are not ultimately satisfied. In addition, delays or rejections
may be encountered based upon changes in applicable law or FDA policy during
the period of product development and FDA regulatory review. Moreover, if
regulatory approval of a product is granted, such approval may be made subject
to various conditions, including post-marketing testing and surveillance to
monitor the safety of the product, or may entail limitations on the indicated
uses for which it may be marketed. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Both before and after approval is obtained, a product, its manufacturer,
and the sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at
any stage, including the preclinical and clinical testing process, the
approval process, or thereafter (including after approval) may result in
various adverse consequences, including FDA delay in approving or refusal to
approve a product, withdrawal of an approved product from the market and/or
the imposition of criminal penalties against the manufacturer and/or sponsor.
In addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or sponsor, including withdrawal
of the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
Whether or not FDA approval has been obtained, approval of a
pharmaceutical product by comparable government regulatory authorities in
foreign countries must be obtained prior to marketing such product in such
countries. The approval procedure varies from country to country, and the
time required may be longer or shorter than that required for FDA approval.
Although there are some procedures for unified filing for certain European
countries, in general, each country has its own procedures and requirements.
The Company does not currently have any facilities or personnel outside of the
United States.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and various other present and potential future
federal, state or local regulations. The Company's research and development
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for storing, handling, using and disposing of such materials comply
with the standards prescribed by applicable regulations, the risk of
accidental contaminations or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held
liable for any damages that result and any such liability could have a
material adverse effect on the Company.
18
Manufacturing
The Company currently manufactures GMK, MGV, PRO 542, PRO 367 and PRO 140
in its two pilot production facilities in Tarrytown, New York. One of these
facilities is for the production of vaccines and the other is for the
production of recombinant proteins. The Company believes that its existing
production facilities will be sufficient to meet the Company's initial needs
for clinical trials. However, these facilities may be insufficient for all of
the Company's late-stage clinical trials and for its commercial-scale
requirements. Accordingly, the Company expects to be required in the future
to expand its manufacturing staff and facilities and obtain new facilities or
to contract with third parties or its corporate collaborators to assist with
production. Pursuant to the BMS License Agreement, the Company granted to BMS
manufacturing rights with respect to GMK and MGV. In the event the Company
decides to establish a full-scale commercial manufacturing facility, the
Company will require substantial additional funds and will be required to hire
and train significant numbers of employees and comply with the extensive cGMP
regulations applicable to such a facility.
Sales and Marketing
Progenics plans to market products for which it obtains regulatory
approval through co-marketing, co-promotion, licensing and distribution
arrangements with third party collaborators. The Company believes that this
approach will both increase market penetration and commercial acceptance of
its products and enable the Company to avoid expending significant funds to
develop a large sales and marketing organization. Pursuant to their
collaboration, the Company granted to BMS exclusive worldwide marketing rights
to GMK and MGV. The Company also has granted to Roche exclusive worldwide
marketing rights to products resulting from their collaboration. In addition,
the Company has entered into collaborative marketing arrangements with DuPont
and Intracel with respect to the sCD4 and gp120 research reagents.
Competition
Competition in the biopharmaceutical industry is intense and
characterized by ongoing research and development and technological change.
The Company faces competition from many companies and major universities and
research institutions in the United States and abroad. The Company will face
competition from companies marketing existing products or developing new
products for diseases targeted by the Company's technologies. Many of the
Company's competitors have substantially greater resources, experience in
conducting preclinical studies and clinical trials and obtaining regulatory
approvals for their products, operating experience, research and development
and marketing capabilities and production capabilities than those of the
Company. There can be no assurance that the products under development by the
Company and its collaborators will be able to compete successfully with
existing products or products under development by other companies,
universities and other institutions. The Company's competitors may succeed in
obtaining FDA approval for products more rapidly than the Company. Drug
manufacturers that are first in the market with a therapeutic for a specific
indication generally obtain and maintain a significant competitive advantage
over later entrants. Accordingly, the speed with which Progenics can develop
products, complete the clinical trials and approval processes and ultimately
supply commercial quantities of the products to the market is expected to be
an important competitive factor.
With respect to GMK, the FDA and certain other regulatory authorities
have approved high-dose alpha interferon for marketing as a treatment for
patients with high risk melanoma. High-dose alpha interferon has demonstrated
some efficacy for this indication. With respect to the Company's products for
the treatment of HIV infection, two classes of products made by competitors of
the Company have been approved for marketing by the FDA for the treatment of
HIV infection and AIDS: reverse transcriptase inhibitors and protease
inhibitors. Both types of drugs have shown efficacy in reducing the
concentration of HIV in the blood and prolonging asymptomatic periods in HIV-
positive individuals, especially when administered in combination.
19
A significant amount of research in the biopharmaceutical field is also
being carried out at academic and government institutions. The Company's
strategy is to in-license technology and product candidates from academic and
government institutions. These institutions are becoming increasingly
sensitive to the commercial value of their findings and are becoming more
aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products
on their own or in collaboration with competitors and will compete with the
Company in recruiting highly qualified scientific personnel. Any resulting
increase in the cost or decrease in the availability of technology or product
candidates from these institutions may affect the Company's business strategy.
Competition with respect to the Company's technologies and product
candidates is and will be based, among other things, on effectiveness, safety,
reliability, availability, price and patent position. The Company's
competitive position will also depend upon its ability to attract and retain
qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes, and to secure sufficient capital resources
for the often substantial period between technological conception and
commercial sales.
Product Liability
The testing, manufacturing and marketing of the Company's products
involves an inherent risk of product liability attributable to unwanted and
potentially serious health effects. To the extent the Company elects to test,
manufacture or market products independently, it will bear the risk of product
liability directly. Pursuant to the BMS License Agreement, BMS is required to
indemnify the Company for liabilities and expenses resulting from, among other
things, the manufacture, use or sale of Licensed Products (as defined in the
BMS License Agreement), subject to certain conditions. The Company has
obtained insurance in the amount of $5,000,000 against the risk of product
liability. This insurance is subject to certain deductibles and coverage
limitations. There is no guarantee that insurance will continue to be
available at a reasonable cost, or at all, or that the amount of such
insurance will be adequate.
Human Resources
At February 28, 1999, the Company had 40 full-time employees, four of
whom (including Dr. Maddon) hold Ph.D. degrees or foreign equivalents and two
of whom (including Dr. Maddon) hold M.D. degrees. At such date, 32 employees
were engaged in research and development, medical and regulatory affairs and
manufacturing activities and eight were engaged in finance, administration and
business development. The Company considers its relations with its employees
to be good. None of its employees is covered by a collective bargaining
agreement.
20
Executive Officers and Key Management
The directors, executive officers and key management of the Company as of
February 28, 1999 were as follows:
Name Age Position
- - ---------------------------------- ---- ------------------------------------
Paul J. Maddon, M.D., Ph.D. 39 Chairman of the Board, Chief
Executive Officer and Chief
Science Officer
Ronald J. Prentki, M.B.A. 41 President
Robert J. Israel, M.D. 42 Vice President, Medical Affairs
Robert A. McKinney, CPA 42 Vice President, Finance and
Operations and Treasurer
Patricia C. Fazio 39 Senior Director, Project
Management and Health & Safety
Kenneth G. Surowitz, Ph.D. 39 Senior Director, Regulatory
Affairs and Quality
William C. Olson, Ph.D. 36 Director, Research and
Development
Paul J. Maddon, M.D., Ph.D. is the founder of the Company and has served
in various capacities since its inception, including Chairman of the Board of
Directors, Chief Executive Officer, President and Chief Science Officer. From
1981 to 1988, Dr. Maddon performed research at the Howard Hughes Medical
Institute at Columbia University in the laboratory of Dr. Richard Axel. Dr.
Maddon serves on two NIH scientific review committees and is a member of the
editorial board of the JOURNAL OF VIROLOGY. He received a B.A. in
biochemistry and mathematics and a M.D. and a Ph.D. in biochemistry and
molecular biophysics from Columbia University. Dr. Maddon has been an Adjunct
Assistant Professor of Medicine at Columbia University since 1989.
Ronald J. Prentki, M.B.A. joined the Company in July 1998. Prior to
joining the Company, Mr. Prentki had been Vice President of Business
Development and Strategic Planning at Hoffman-La Roche Inc., a position he
held since 1996. Mr. Prentki spent from 1990 to 1996 at Sterling Winthrop
(subsequently acquired by Sanofi Pharmaceuticals), most recently serving as
Vice President of Business Development. From 1985 to 1990 Mr. Prentki was
with Bristol-Myers Squibb International Division, initially supporting the
marketing of that company's oncology products and later as Director of
Cardiovascular Products. Mr. Prentki started his career in 1979 in the Ames
Diagnostic Division of Miles Laboratories holding a series of sales, marketing
and product development positions before leaving the company in 1985. Mr.
Prentki received a B.S. in Microbiology and Public Health from Michigan State
University and an M.B.A. from the University of Detroit.
Robert J. Israel, M.D. joined the Company in October 1994 and has been
Vice President, Medical Affairs since that time. From 1991 to 1994, Dr. Israel
was Director, Clinical Research-Oncology and Immunohematology at Sandoz
Pharmaceuticals Corporation, a pharmaceutical company. From 1988 to 1991, he
was Associate Director, Oncology Clinical Research at Schering-Plough
Corporation, a pharmaceutical company. Dr. Israel is a licensed physician and
is board certified in both internal medicine and medical oncology. He
received a B.A. in physics from Rutgers University and a M.D. from the
University of Pennsylvania and completed an oncology fellowship at
Sloan-Kettering. Dr. Israel has been a consultant to the Solid Tumor Service
at Sloan-Kettering since 1987.
21
Robert A. McKinney, CPA joined the Company in September 1992. Mr.
McKinney served as Director, Finance and Operations and Treasurer from 1992 to
January 1993, when he was appointed Vice President, Finance and Operations and
Treasurer of Progenics. From 1991 to 1992, he was Corporate Controller at
VIMRx Pharmaceuticals, Inc., a biotechnology research company. From 1990 to
1991, Mr. McKinney was Manager, General Accounting at Micrognosis, Inc., a
software integration company. From 1985 to 1990, he was an audit supervisor
at Coopers & Lybrand L.L.P., an international accounting firm. Mr. McKinney
studied finance at the University of Michigan, received a B.B.A. in accounting
from Western Connecticut State University, and is a Certified Public
Accountant.
Patricia C. Fazio joined the Company in August 1992. Ms. Fazio has
served in various management positions at Progenics, most recently as Senior
Director, Project Management and Health & Safety. From 1987 to 1992, she was
Senior Research Technician and Laboratory Manager at the Howard Hughes Medical
Institute at Columbia University. From 1982 to 1987, Ms. Fazio was Chief
Laboratory Technologist in the Department of Pathology at Columbia
Presbyterian Medical Center. She received a B.S. in biology and chemistry at
the College of New Rochelle.
Kenneth G. Surowitz, Ph.D. joined the Company in February 1999 as Senior
Director, Regulatory Affairs and Quality. Prior to joining the Company, Mr.
Surowitz was Director, Global Regulatory Affairs at the Wyeth-Lederle Vaccines
division of American Home Products Corporation. Dr. Surowitz joined Wyeth
Lederle Vaccines in 1988 and held several other positions, including other
positions in regulatory affairs and positions in vaccine manufacturing and
product development. Prior to joining Wyeth Lederle Vaccines, Dr. Surowitz
was employed as a developmental microbiologist at Procter and Gamble, Inc.
Dr. Surowitz earned an M.S. and a Ph.D. in Microbiology, both from Ohio State
University.
William C. Olson, Ph.D. joined the Company in May 1994 and presently
serves as Director, Research and Development. From 1989 to 1992, Dr. Olson
served as a Research Scientist at Johnson & Johnson, and from 1992 until 1994
he was a Development Scientist at MicroGeneSys, Inc., a biotechnology company.
Dr. Olson received a Ph.D. from the Massachusetts Institute of Technology and
a B.S. from the University of North Dakota. Both degrees were awarded in the
field of chemical engineering.
22
An important component of Progenics' scientific strategy is its
collaborative relationship with leading researchers in cancer and virology.
Certain of these researchers are members of the Company's two Scientific
Advisory Boards (each an "SAB"), one in cancer and one in virology. The
members of each SAB attend periodic meetings and provide Progenics with
specific expertise in both research and clinical development. In addition,
Progenics has collaborative research relationships with certain individual SAB
members. All members of the SABs are employed by employers other than the
Company and may have commitments to or consulting or advisory agreements with
other entities that may limit their availability to the Company. These
companies may also be competitors of Progenics. Several members of the SABs
have, from time to time, devoted significant time and energy to the affairs of
the Company. However, no member is regularly expected to devote more than a
small portion of his time to Progenics. In general, Progenics' scientific
advisors are granted stock options in the Company and receive financial
remuneration for their services.
Cancer Scientific Advisory Board
Name Position/Affiliation
- - ---------------------------------- --------------------------------------
Alan N. Houghton, M.D. (Chairman) Chairman, Immunology Program,
Sloan-Kettering and Professor,
Cornell University Medical
College ("CUMC")
Angus G. Dalgleish, M.D., Ph.D. Chairman and Professor of Medical
Oncology, St. George's Hospital,
London
Samuel J. Danishefsky, Ph.D. Kettering Professor and Head,
Bioorganic Chemistry,
Sloan-Kettering Institute and
Professor of Chemistry,
Columbia University
David R. Klatzmann, M.D., Ph.D. Professor of Immunology, Pitie-
Salpetriere Hospital, Paris
Philip O. Livingston, M.D. Associate Member, Sloan-Kettering
and Associate Professor, CUMC
John Mendelsohn, M.D. President, The University of
Texas M.D. Anderson Cancer Center
David A. Scheinberg, M.D., Ph.D. Chief, Leukemia Service, Sloan-
Kettering and Associate
Professor, CUMC
David B. Agus, M.D. Assistant Attending Physician,
Sloan-Kettering and Assistant
Professor, CUMC
23
Virology Scientific Advisory Board
Name Position/Affiliation
- - ---------------------------------- --------------------------------------
Stephen P. Goff, Ph.D. (Chairman) Professor of Biochemistry,
Columbia University
Mark Alizon, M.D., Ph.D. Director of Research, Institute
Cochin, Paris
Lawrence A. Chasin, Ph.D. Professor of Biological Sciences,
Columbia University
Leonard Chess, M.D. Professor of Medicine, Columbia
University
Wayne A. Hendrickson, Ph.D. Professor of Biochemistry,
Columbia University
Israel Lowy, M.D., Ph.D. Assistant Professor of Medicine,
Mount Sinai Medical Center
J. Steven McDougal, M.D. Chief, Immunology Branch, CDC,
Atlanta
Sherie L. Morrison, Ph.D. Professor of Microbiology, UCLA
Robin A. Weiss, Ph.D. Professor and Director of
Research, ICR, Royal Cancer
Hospital, London
Other Scientific Consultants
Name Position/Affiliation
- - ---------------------------------- --------------------------------------
David W. Golde, M.D. Physician-in-Chief, Sloan-
Kettering and Professor, CUMC
24
RISK FACTORS
The Company's business and operations entail a variety of risks and
uncertainties, including those described below.
Early Stage of Product Development; Technological Uncertainties
The Company is at an early stage of development, and the successful
commercialization of any products will require significant further research,
development, testing and/or regulatory approvals and additional investment.
Substantially all of the Company's resources have been, and for the
foreseeable future are expected to be, dedicated to the development of
products for diseases, most of which products are still in the early stages of
development and testing. There are a number of technological challenges that
the Company must successfully address to complete most of its development
efforts. In addition, the product development programs conducted by the
Company and its collaborators are subject to the risks of failure inherent in
the development of product candidates based on new technologies. These risks
include the possibility that the technologies used by the Company will prove
to be ineffective or any or all of the Company's product candidates will prove
to be unsafe or otherwise fail to receive necessary regulatory approvals; that
the product candidates, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market; that the proprietary
rights of third parties will preclude the Company or its collaborators from
marketing the products utilizing the Company's technologies; or that third
parties will market equivalent or superior products. To the Company's
knowledge, no cancer therapeutic vaccine and no drug designed to treat HIV
infection by blocking viral entry has been approved for marketing. The
Company's other research and development programs involve novel approaches to
human therapeutics. There can be no assurance that any of the Company's
products will be successfully developed. The commercial success of the
Company's products, if any, when and if approved for marketing by the FDA,
will depend upon their acceptance by the medical community and third party
payors as clinically useful, cost effective and safe. Even if any of the
Company's products obtain regulatory approval, there can be no assurance that
any such product will achieve market acceptance of any significance.
Uncertainty Associated with Preclinical and Clinical Testing
Prior to the commercial sale of any of the Company's potential products,
the Company and/or its collaborators must demonstrate their safety and
efficacy in humans through extensive preclinical and clinical testing. The
results of preclinical studies by the Company and/or its collaborators may be
inconclusive and may not be indicative of results that will be obtained in
human clinical trials. There can be no assurance that any of the Company's
products in the research or preclinical development stage will yield results
that would permit or justify clinical testing. Further, there can be no
assurance that any of the Company's potential products that undergo clinical
trials will have the desired effect or will not have undesirable side effects
or other characteristics that may prevent them from being approved or limit
their commercial use if approved. In addition, results attained in early
human clinical trials relating to products under development by the Company
may not be indicative of results that will be obtained in later clinical
trials. As results of particular preclinical studies and clinical trials are
received, the Company and/or its collaborators may abandon projects which they
might previously have believed to be promising, some of which may be described
herein. In addition, the Company, its collaborators or the FDA or other
regulatory agencies may suspend or terminate clinical trials at any time if
the subjects or patients participating in such trials are being exposed to
unacceptable health risks. Clinical testing is very expensive and can involve
many years. The failure to adequately demonstrate the safety and efficacy of
a therapeutic product under development by the Company and/or its
collaborators could delay or prevent regulatory approval of the product and
would have a material adverse effect on the Company.
The Company has commenced two Phase III clinical trials for GMK and plans
to commence a third such trial in 1999. If the results of these trails are
not satisfactory, the Company would need to conduct additional clinical trials
or abandon its GMK program. Any such result would have a material adverse
effect on the Company.
25
Although for planning purposes the Company forecasts the commencement,
continuation and completion of clinical trials, actual results can vary
dramatically due to factors such as delays, scheduling conflicts with
participating clinicians and clinical institutions and the rate of patient
accruals. The Company's most advanced product candidates are intended for
treating patients with relatively early stage cancer and are designed to delay
or prevent recurrence of disease. As a consequence, clinical trials involving
these product candidates are likely to take longer to complete than clinical
trials involving other types of therapeutics. There can be no assurance that
clinical trials involving the Company's product candidates will commence or be
completed as forecasted.
The Company has limited experience in conducting clinical trials. In
certain circumstances the Company relies on corporate collaborators, academic
institutions or clinical research organizations to conduct, supervise and/or
monitor some or all aspects of clinical trials involving the Company's
products. In addition, certain clinical trials for the Company's products
will be conducted by government-sponsored agencies and consequently will be
dependent on government participation and funding. The Company will have less
control over the timing and other aspects of these clinical trials than if it
conducted the trails entirely by itself, and there can be no assurance that
these trials will commence or be completed as the Company expects or that they
will be conducted successfully. Failure to commence or complete any of its
planned clinical trials could have a material adverse effect on the Company.
Risks Relating to Corporate Collaborations
Progenics' business strategy includes entering into collaborations with
corporate partners, primarily pharmaceutical companies, for the research,
development (including clinical development), commercialization, marketing
and/or distribution of certain of its product candidates. The Company has
entered into a significant corporate collaboration with BMS covering the
Company's most advanced product candidates. Pursuant to its agreements with
BMS, Progenics has granted to BMS the exclusive worldwide license to
manufacture, use and sell GMK and MGV and any other products to which
Progenics has rights that include the GM2 or GD2 ganglioside antigens for the
treatment or prevention of human cancer. The Company has also entered into a
collaboration with Roche pursuant to which the Company has granted to Roche an
exclusive worldwide license to certain applications of the Company's HIV co-
receptor technology. As a result of the governing agreements, the Company is
dependent on BMS and Roche to fund testing, to make certain regulatory filings
and to manufacture and market existing and any future products resulting from
the collaborations. There can be no assurance that the arrangements with BMS,
Roche or any other collaborator will be scientifically, clinically or
commercially successful. In the event that any such arrangement is
terminated, such action could adversely affect the Company's ability to
develop, commercialize, market and distribute certain of its product
candidates. The Company's product candidates will only generate milestone
payments and royalties after significant preclinical and/or clinical
development, the procurement of requisite regulatory approvals, the
establishment of manufacturing capabilities and/or the successful marketing of
the product.
The amount and timing of resources dedicated by BMS, Roche or any other
collaborator to their respective collaborations with the Company is not
within the Company's control. If any such collaborator breaches or terminates
its agreements with the Company, or fails to conduct its collaborative
activities in a timely manner, the commercialization of product candidates may
be adversely affected. There can be no assurance that the Company's
collaborative partners will not change their strategic focus or pursue
alternative technologies or develop alternative products either on their own
or in collaboration with others, including the Company's competitors, as a
means for developing treatments for the diseases targeted by these
collaborative programs. For example, both BMS and Roche market products that
may compete against the products that may result from their respective
collaborations with the Company. The Company's business also will be affected
by the effectiveness of its corporate partners in marketing any successfully
developed products. A reduction in sales efforts or a discontinuance of sales
of any developed products by any collaborative partner could result in reduced
revenues and have a material adverse effect on the Company.
There can be no assurance that the Company's existing strategic alliances
will continue or be successful or that the Company will receive any further
research funding or milestone or royalty payments. If the Company's partners
do not develop products under these collaborations, there can be no assurance
that the Company would be able to do so. Disputes may arise between the
Company and its collaborators as to a variety of matters, including ownership
of intellectual property rights. These disputes may be both expensive and
time-consuming and may result in delays in the development and
commercialization of certain product candidates. There can be no assurance
that the Company will be able to negotiate any additional collaborative
arrangements, that such arrangements will be available to the Company on
acceptable terms or that any such relationships, if established, will be
scientifically or commercially successful. Furthermore, any additional
collaborations would likely be subject to some or all of the risks described
above with respect to the Company's current collaborations.
26
History of Operating Losses and Accumulated Deficit; No Product Revenue
and Uncertainty of Future Profitability
The Company has incurred substantial losses since its inception. As of
December 31, 1998, the Company had an accumulated deficit of approximately
$17.2 million. Such losses have resulted principally from costs incurred in
the Company's research and development programs and general and administrative
costs associated with the Company's development. The Company has derived no
significant revenues from product sales or royalties and no significant
product sales or royalties are likely for a number of years, if ever. The
Company may incur additional operating losses in the future, which could
increase significantly as the Company expands development and clinical trial
efforts. The Company's ability to achieve long-term profitability is
dependent in part on obtaining regulatory approvals for products and entering
into agreements for commercialization of such products. There can be no
assurance that such regulatory approvals will be obtained or such agreements
will be entered into. The failure to obtain any such necessary regulatory
approvals or to enter into any such necessary agreements could delay or
prevent the Company from achieving profitability and would have a material
adverse effect on the Company. Further, there can be no assurance that the
Company's operations will be profitable even if any product under development
by the Company or any collaborators is commercialized.
Need for Additional Financing and Uncertain Access to Capital Funding
Progenics' current development projects require substantial capital. The
Company does not have committed external sources of funding for certain of its
drug discovery and development projects. The Company may require substantial
additional funds to conduct development activities, preclinical studies,
clinical trials and other activities relating to the successful
commercialization of potential products. There can be no assurance, however,
that the Company will be able to obtain additional funds on acceptable terms,
if at all. If adequate funds are not available, the Company may be required
to delay, reduce the scope of or eliminate one or more of its programs; obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would otherwise seek to
develop or commercialize itself; or license the rights to such technologies,
product candidates or products on terms that are less favorable to the Company
than might otherwise be available. If the Company raises additional funds by
issuing equity securities, further dilution to stockholders may result and new
investors could have rights superior to existing stockholders.
Limited Manufacturing Capabilities
In order to commercialize its product candidates successively, Progenics
and/or its collaborators must be able to manufacture its products in
commercial quantities, in compliance with regulatory requirements, at
acceptable costs and in a timely manner. The manufacture of the types of
biopharmaceutical products being developed by the Company (independently and
with its collaborators) presents several risks and difficulties. The
manufacture of some or all of the Company's product candidates can be complex,
difficult to accomplish even in small quantities, difficult to scale-up when
large scale production is required and subject to delays, inefficiencies and
poor or low yields of quality products. Although Progenics has constructed
two pilot-scale manufacturing facilities, one for the production of vaccines
and one for the production of recombinant proteins, which it believes will be
sufficient to meet the Company's initial needs for clinical trials, these
facilities may be insufficient for all of its late-stage clinical trials and
for its commercial-scale manufacturing requirements, if any. Furthermore,
there can be no assurance that the Company's collaboration with Genzyme
Transgenics for the transgenic production of PRO 542 will result in a cost-
effective means for the production of PRO 542. Accordingly, the Company may
be required to expand its manufacturing staff and facilities and obtain new
facilities or contract with corporate collaborators or other third parties to
assist with production. For manufacture of some of its products, Progenics
may contract with third party manufacturers. In employing third party
manufacturers, Progenics will not control all aspects of the manufacturing
process. There can be no assurance that the Company will be able to obtain
from third party manufacturers adequate supplies in a timely fashion for
commercialization, or that commercial quantities of any such products, if
approved for marketing, will be available from contract manufacturers at
acceptable costs. In the event the Company decides to establish a commercial-
scale manufacturing facility, the Company will require substantial additional
funds and will be required to hire and train significant numbers of employees
and comply with the extensive regulations applicable to such a facility.
There can be no assurance that Progenics will be able to develop a cGMP
manufacturing facility sufficient for all clinical trials or commercial-scale
manufacturing. The cost of manufacturing certain products may make them
prohibitively expensive.
27
Availability of Materials
There can be no assurance that sufficient quantities of raw materials
will be available to support continued research, development or commercial
manufacture of any of the Company's planned products. The Company currently
obtains supplies of critical materials used in production of GMK and MGV from
single sources. Specifically, commercialization of the Company's GMK and MGV
cancer vaccine candidates requires an adjuvant, QS-21, available only from
Aquila. The Company has entered into a license and supply agreement with
Aquila pursuant to which Aquila agreed to supply the Company with all of its
requirements for QS-21 for use in certain ganglioside-based cancer vaccines,
including GMK and MGV. In connection with the Company's collaboration with
BMS, Progenics granted to BMS a non-exclusive sublicense under the Company's
license and supply agreement with Aquila, and BMS entered into a supply
agreement with Aquila. There can be no assurance that Aquila will be able to
supply sufficient quantities of QS-21 to the Company or BMS or that the
Company or BMS will have the right or capability to manufacture sufficient
quantities of QS-21 to meet its needs if Aquila is unable or unwilling to do
so. There can be no assurance that the Company will not be subject to delays
or disruption in the supply of this component. Any delay or disruption in the
availability of raw materials could have a material adverse effect on the
Company.
Government Regulation; No Assurance of Regulatory Approval
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the preclinical and clinical testing, safety,
effectiveness, approval, manufacture, labeling, marketing, export, storage,
record keeping, advertising, and promotion of the Company's products. Among
other requirements, FDA approval of the Company's products, including a review
of the manufacturing processes and facilities used to produce such products,
will be required before such products may be marketed in the United States.
The process of obtaining FDA approvals can be costly, time consuming and
subject to unanticipated delays, and the Company has had only limited
experience in filing and pursuing applications necessary to gain regulatory
approvals. The Company is also subject to numerous and varying foreign
regulatory requirements governing the design and conduct of clinical trials
and the manufacturing and marketing of its products. The foreign regulatory
approval process may include all of the risks associated with obtaining FDA
approval set forth above. There can be no assurance that the Company or its
partners will file for regulatory approvals or receive necessary approvals to
commercialize product candidates in a timely manner in any market. Delays in
receipt of or failure to receive regulatory approvals, or the loss of
previously received approvals, would have a material adverse effect on the
Company.
Both before and after approval is obtained, a product, its manufacturer
and the sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at
any stage, including the preclinical and clinical testing process, the
approval process, or post-approval marketing activities may result in various
adverse consequences.
28
Dependence On Third Parties
In addition to its reliance on corporate collaborators, the Company
relies in part on third parties to perform a variety of functions, including
research and development, manufacturing, clinical trials management and
regulatory affairs. As of February 28, 1999, the Company had only 40
full-time employees. The Company is party to several collaborative agreements
which place substantial responsibility on third parties for clinical
development of the Company's products. The Company also in-licenses
technology from medical and academic institutions in order to minimize
investments in early research and enters into collaborative arrangements with
certain of these entities with respect to clinical trials of product
candidates.
Except for payments made to the Company under its collaborations with BMS
and Roche, most of the Company's revenues to date have been derived from
federal research grants. The government's obligation to make payments under
these grants is subject to appropriation by the United States Congress for
funding in each year. Moreover, it is possible that Congress or the
government agencies that administer these government research programs will
determine to scale back these programs or terminate them or that the
government will award future grants to competitors of the Company instead of
the Company. In addition, there can be no assurances that the Company will be
awarded any such grants in the future or that any amounts derived therefrom
will not be less than those received to date. Certain of the Company's
clinical trials are expected to be partially paid for by government funds.
Any future reduction in the funding the Company receives either from federal
research grants or with respect to clinical trials could have a material
adverse effect on the Company.
There can be no assurance that Progenics will be able to establish and
maintain any of the relationships described above on terms acceptable to the
Company, that the Company can enter into these arrangements without undue
delays or expenditures or that these arrangements will allow the Company to
compete successfully against other companies.
Lack of Sales and Marketing Experience
If FDA and other approvals are obtained with respect to any of its
products, Progenics expects to market and sell its products principally
through distribution, co-marketing, co-promotion or licensing arrangements
with third parties. The Company's agreements with BMS and Roche grant these
collaborators the exclusive right to market any products resulting from their
respective collaborations. Progenics has no experience in sales, marketing or
distribution. To the extent that the Company enters into distribution, co-
marketing, co-promotion or licensing arrangements for the marketing and sale
of its products, any revenues received by the Company will be dependent on the
efforts of third parties. The Company would not control the amount and timing
of marketing resources such third parties would devote to the Company's
products. In addition, if the Company markets products directly, significant
additional expenditures and management resources would be required to develop
an internal sales force. There can be no assurance that the Company will be
able to establish a successful sales force, should it choose to do so.
Dependence on and Uncertainty of Protection of Patents and Proprietary
Rights
The Company's success is dependent in part on obtaining, maintaining and
enforcing patent and other proprietary rights. The patent position of
biotechnology and pharmaceutical firms is highly uncertain and involves many
complex legal and technical issues. There is no clear policy involving the
breadth of claims allowed in such cases, or the degree of protection afforded
under such patents. Accordingly, there can be no assurance that patent
applications owned by or licensed to the Company will result in patents being
issued or that, if issued, the patents will afford protection against
competitors with similar technology.
29
The issuance of a patent is not conclusive as to its validity or the
enforceable scope of its claims. The validity or enforceability of a patent
after its issuance by the patent office can be challenged in litigation.
There can be no assurance that the Company's issued patents or any patents
subsequently issued to or licensed by the Company will not be successfully
challenged. Moreover, the cost of litigation to uphold the validity of
patents and to prevent infringement can be substantial. If the outcome of the
litigation is adverse to the patent owner, third parties may be able to use
the patented invention without payment. Moreover, there can be no assurance
that the Company's patents will not be infringed or successfully avoided
through design innovation.
There may be patent applications and issued patents belonging to
competitors that may require the Company to alter its products, pay licensing
fees or cease certain activities. If the Company's products conflict with
patents that have been or may be granted to competitors, universities or
others, such other persons could bring legal actions against the Company
claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If any such actions are successful, in addition to any
potential liability for damages, the Company could be required to obtain a
license in order to continue to manufacture or market the affected products.
There can be no assurance that the Company would prevail in any such action or
that any license required under any such patent would be made available on
acceptable terms or at all.
ADARC is a co-owner with the Company of one of the patent applications
relating to the HIV co-receptor CCR5 and upon which the Company's HIV co-
receptor/fusion program is based. Unless the Company acquires from ADARC an
exclusive license to ADARC's rights in this patent application, there can be
no assurance that ADARC will not license such patent to a competitor of the
Company. Additionally, Progenics has filed a number of U.S. and foreign
patent applications (one of which is owned jointly with ADARC) relating to the
discovery of the HIV co-receptor CCR5. The Company is aware that other groups
have claimed discoveries similar to those covered by the Company's patent
applications. These groups may have made their discoveries prior to the
discoveries covered by the Company's patent applications and may have filed
their applications prior to the Company's patent applications. The Company
does not expect to know for several years the relative strength of its patent
position as compared to these other groups.
The Company is required to make substantial cash payments and achieve
certain milestones and satisfy certain conditions, including, without
limitation, filing INDs, obtaining product approvals and introducing products,
to maintain its rights under licenses granted to the Company, including its
licenses from Sloan-Kettering and Columbia University. There can be no
assurance that the Company will be able to maintain its rights under these
licenses. Termination of any of such licenses could result in the Company
being unable to develop and/or commercialize any related product and
consequently could have a material adverse effect on the Company.
In addition to the patents, patent applications, licenses and
intellectual property processes described above, the Company also relies on
unpatented technology, trade secrets and information. No assurance can be
given that others will not independently develop substantially equivalent
information and techniques or otherwise gain access to the Company's
technology or disclose such technology, or that the Company can effectively
protect its rights in such unpatented technology, trade secrets and
information. The Company requires each of its employees, consultants and
advisors to execute a confidentiality agreement at the commencement of an
employment or consulting relationship with the Company. There can be no
assurance however, that these agreements will provide effective protection for
the Company's information in the event of unauthorized use or disclosure of
such confidential information.
30
Dependence Upon Key Personnel; Attraction and Retention of Personnel
Progenics is dependent upon certain key management and scientific
personnel. In particular, the loss of Dr. Maddon could have a materially
adverse effect on Progenics unless a qualified replacement could be found.
Progenics maintains a key man life insurance policy on Dr. Maddon in the
amount of $2.5 million. The Company has an employment agreement with Dr.
Maddon that expires in December 2001.
Competition for qualified employees among companies in the
biopharmaceutical industry is intense. Progenics' future success depends upon
its ability to attract, retain and motivate highly skilled employees. In
order to commercialize its products successfully, the Company may be required
to expand substantially its personnel, particularly in the areas of
manufacturing, clinical trials management, regulatory affairs, business
development and marketing. There can be no assurance that the Company will be
successful in hiring or retaining qualified personnel.
Uncertainty Related to Health Care Reform Measures and Reimbursement
In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included
measures that would limit or eliminate payments for certain medical procedures
and treatments or subject the pricing of pharmaceuticals to government
control. In addition, as a result of the trend towards managed health care in
the United States, as well as legislative proposals to reduce government
insurance programs, third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement of
new drug products. Consequently, significant uncertainty exists as to the
reimbursement status of newly-approved health care products. If the Company
or any of its collaborators succeeds in bringing one or more of Progenics'
products to market, there can be no assurance that third-party payors will
establish and maintain price levels sufficient for realization of an
appropriate return on the Company's investment in product development.
Significant changes in the health care system in the United States or
elsewhere, including changes resulting from adverse trends in third-party
reimbursement programs, could have a material adverse effect on the Company.
Such changes also could have a material adverse effect on the Company's
ability to raise capital. Furthermore, the Company's ability to commercialize
products may be adversely affected to the extent that such proposals affect
the Company's collaborators.
Risk of Product Liability; Limited Availability of Insurance
The Company's business exposes it to potential product liability risks
which are inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products, and there can be no assurance that the Company will
be able to avoid product liability exposure. Product liability insurance for
the biopharmaceutical industry is generally expensive, when available at all.
The Company has obtained product liability insurance coverage in the amount of
$5 million per occurrence, subject to a $5 million aggregate limitation.
However, there can be no assurance that the Company's present insurance
coverage is now or will continue to be adequate. In addition, certain of the
Company's license and collaborative agreements require the Company to obtain
product liability insurance, and it is possible that future license and
collaborative agreements may also include such a requirement. There can be no
assurance that in the future adequate insurance coverage will be available at
a reasonable cost or that a product liability claim or recall would not have a
material adverse effect on the Company.
Hazardous Materials; Environmental Matters
The Company's research and development work and manufacturing processes
involve the use of hazardous, controlled and radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Despite precautionary procedures implemented by the
Company for handling and disposing of such materials, the risk of accidental
contamination or injury cannot be eliminated. In the event of such an
accident, the Company could be held liable for any damages that result.
Although the Company believes that it is in compliance in all material
respects with applicable environmental laws and regulations, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental laws and regulations in the future, or that the
Company will not be materially and adversely affected by current or future
environmental laws or regulations.
31
Control by Existing Stockholders; Anti-Takeover Provisions
Certain stockholders of the Company, including Dr. Maddon and
stockholders affiliated with Tudor Investment Corporation, beneficially own or
control a substantial portion of the outstanding shares of the Company's
Common Stock (the "Common Stock") and therefore may have the ability, acting
together, to elect all of the Company's directors, to determine the outcome of
corporate actions requiring stockholder approval and otherwise control the
business of the Company. Such control could have the effect of delaying or
preventing a change in control of the Company and consequently adversely
affect the market price of the Common Stock. In addition, the Company's Board
of Directors is authorized to issue from time to time shares of Preferred
Stock, without further stockholder authorization, in one or more designated
series or classes. The issuance of Preferred Stock, as well as certain
provisions in certain of the Company's stock options which provide for
acceleration of exercisability upon a change of control of the Company and
certain provisions of the Delaware General Corporation Law (Section 203, in
particular), could make the takeover of the Company or the removal of the
Company's management more difficult, discourage hostile bids for control of
the Company in which stockholders may receive a premium for their shares of
Common Stock or otherwise dilute the rights of holders of Common Stock and
depress the market price of the Common Stock.
Future Sales of Common Stock; Registration Rights; Possible Adverse
Effect on Future Market Price
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding options and warrants are
eligible for sale in the public market. Sales of substantial numbers of
shares of Common Stock could adversely affect prevailing market prices.
Certain stockholders of the Company are entitled to certain rights with
respect to the registration of shares of Common Stock for offer or sale to the
public. The Company has filed a Form S-8 registration statement registering
shares issuable pursuant to the Company's stock option plans. Any sales by
existing stockholders or holders of options or warrants may have an adverse
effect on the Company's ability to raise capital and may adversely affect the
market price of the Common Stock.
Item 2. Properties
Progenics leases approximately 24,000 square feet of laboratory,
manufacturing and office space in Tarrytown, New York. The Company leases
this space under an operating lease which terminates in December 1999, with an
option on the part of Progenics to extend the lease for one additional year.
Progenics has two pilot production facilities within its leased facilities for
the manufacture of products for clinical trials. The Company believes that
its current facilities are adequate for its current needs.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
32
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PGNX." Shares of the Company's Common Stock were first offered to
the public on November 19, 1997. The following table sets forth, for the
periods indicated, the high and low sales price per share of the Common Stock,
as reported on the Nasdaq National Market. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
High Low
1997: ---------- ---------
Fourth quarter (from November 19).... $15 5/16 $ 8
1998:
First quarter........................ 22 13
Second quarter....................... 22 13
Third quarter........................ 15 3/4 8
Fourth quarter....................... 16 3/4 9
1999:
First Quarter (through March 26) .... 16 3/4 10 3/4
On March 26, 1999, the last sale price for the Common Stock as reported
by Nasdaq was $10.75. As of March 26, 1999, there were approximately 164
holders of record of the Company's Common Stock and approximately 2,000
beneficial holders.
Dividends
The Company has not paid any cash dividends since its inception and
presently anticipates that all earnings, if any, will be retained for
development of the Company's business and that no cash dividends on its Common
Stock will be declared in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors.
Use of Proceeds from Registered Securities
On November 19, 1997, the Securities and Exchange Commission declared
effective the Company's Registration Statement (No. 333-13627) on Form S-1, as
then amended, relating to the Company's initial public offering of Common
Stock. As of December 31, 1998, of the $17,112,000 in proceeds (net of
underwriting discounts and commissions but not of associated expenses) from
the Company's initial public offering, approximately $14,284,000 had been
applied to research and development and general operating expenses and the
remainder had been applied to temporary investments in corporate debt
securities and money market funds. With the exception of compensation paid to
the officers and certain of the directors of the Company as employees or
consultants, no amounts paid in respect of operating expenses were paid to
directors or officers of the Company or their associates, to any person
owning 10% or more of any class of equity securities of the Company or to any
affiliates of the Company.
33
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 1997 and
1998 and for each of the years in the three year period ended December 31,
1998 are derived from the Company's audited financial statements, included
elsewhere herein. The selected financial data presented below with respect to
the balance sheet data as of December 31, 1994, 1995 and 1996 and for each of
the years in the two-year period ended December 31, 1995 are derived from the
Company's audited financial statements not included herein. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related Notes included elsewhere herein.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research and development $ $ 200 $ 318 $ 14,591 $ 11,135
Research grants 504 525 203 665 1,251
Product sales 52 50 98 57 180
Interest income 108 46 106 301 1,455
---------- ---------- ---------- ---------- ----------
Total revenues 664 821 725 15,614 14,021
---------- ---------- ---------- ---------- ----------
EXPENSES:
Research and development 2,859 3,852 3,700 7,364 8,296
General and administrative 878 1,094 2,808 2,222 3,841
Interest expense 50 87 51 312 43
Depreciation and amortization 289 291 309 319 388
---------- ---------- ---------- ---------- ----------
Total expenses 4,076 5,324 6,868 10,217 12,568
---------- ---------- ---------- ---------- ----------
Operating (loss) income (3,412) (4,503) (6,143) 5,397 1,453
Income taxes 258
---------- ---------- ---------- ---------- ----------
Net (loss) income $ (3,412) $ (4,503) $ (6,143) $ 5,139 $ 1,453
========== ========== ========== ========== ==========
Per share amounts on net (loss)
income (1):
Basic $ (1.52) $ (1.99) $ (2.68) $ 1.64 $ 0.16
======== ======== ======== ======== ========
Diluted $ (1.52) $ (1.99) $ (2.68) $ 0.66 $ 0.14
======== ======== ======== ======== ========
(1) For all periods presented above, the Company adopted the provisions of
Financial Accounting Standard No. 128 "Earnings per Share". (See Notes to
Financial Statements)
DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable Securities $ 2,275 $ 559 $ 647 $ 23,624 $ 24,650
Working capital 2,019 19 (1,109) 20,562 25,137
Total assets 3,489 1,736 1,663 24,543 27,900
Capital lease obligations and
deferred Lease liability,
long-term portion 235 213 156 141 117
Total stockholders' equity
(deficit) 2,827 852 (385) 23,034 26,079
__________________________
34
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Progenics is a biopharmaceutical company focusing on the development and
commercialization of innovative products for the treatment and prevention of
cancer and viral diseases. The Company commenced principal operations in late
1988 and since that time has been engaged primarily in organizational efforts,
including recruitment of scientific and management personnel, research and
development efforts, development of its manufacturing capabilities,
establishment of corporate collaborations and raising capital. In order to
commercialize the principal products that the Company has under development,
the Company 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 the Company receives revenues from sales of any of
its products. To date, product sales have consisted solely of limited
revenues from the sale of research reagents. The Company expects that sales
of research reagents in the future will not significantly increase over
current levels. The Company's other sources of revenues through December 31,
1998 have been payments received under its collaboration agreements, research
grants and contracts related to the Company's cancer and HIV programs and
interest income.
To date, a majority of the Company's expenditures have been for research
and development activities. The Company expects that its research and
development expenses will increase significantly as its programs progress and
the Company makes filings for related regulatory approvals. The Company had
recurring losses prior to 1997 and had at December 31, 1998 an accumulated
deficit of $17,208,000. The Company has financed its operations primarily
through the private sale and issuance of equity securities, a line of credit
that has since been repaid and terminated, payments received under its
collaboration with BMS beginning in July 1997, payments received under its
collaboration with Roche beginning in January 1998 and the proceeds of the
Company's initial public offering in November 1997. The Company will require
additional funds to complete the development of its products, to fund the cost
of clinical trials, and to fund operating losses which are expected to
continue for the foreseeable future. The Company does not expect its products
under development to be commercialized in the near future.
In July 1997, Progenics entered into a Joint Development and Master
License Agreement (the BMS Agreements). These agreements provide for BMS to
fund further development, clinical trials and regulatory filings related to
GMK and MGV. Consequently, Progenics does not expect to make significant
additional expenditures relating to these product candidates for so long as
these agreements remain in force. In connection with the establishment of
this collaboration, BMS paid to the Company in July 1997 an aggregate of
approximately $13.3 million, representing reimbursement for expenses
previously incurred by Progenics in the development of GMK and MGV, licensing
fees and reimbursement of clinical development costs for the period April 15,
1997 to September 30, 1997. In connection with payments made by BMS to the
Company under the BMS License Agreement, the Company made certain payments to
licensors and incurred other related expenses. See "Business-- General
Overview-- BMS Collaboration."
Results of Operations
Years Ended December 31, 1997 and 1998
Contract research and development revenue decreased from $14,591,000 in
1997 to $11,135,000 in 1998. In connection with the BMS License Agreement,
the Company received a licensing fee in 1997 and a milestone payment in 1998
and reimbursement of clinical development during both years. Revenues from
research grants increased from $665,000 in 1997 to $1,251,000 in 1998. The
increase resulted from the funding of a greater number of grants in 1998.
Sales of research reagents increased from $57,000 in 1997 to $180,000 in 1998
resulting from increased orders for such reagents during 1998. Interest
income increased from $301,000 in 1997 to $1,455,000 in 1998 due to the
increase in cash available for investing as the Company received continued
funding under the BMS License Agreement and invested the proceeds of its
initial public offering completed in November 1997.
Research and development expenses increased from $7,364,000 in 1997 to
$8,296,000 in 1998. The increase was principally due to additional costs of
manufacturing GMK and monitoring the Company's Phase III clinical trials
during 1998, and additional costs of manufacturing PRO 542.
35
General and administrative expenses increased from $2,222,000 in 1997 to
$3,841,000 in 1998. The increase was principally due to the increase of
professional fees associated with the negotiation of potential license
agreements and increased costs of investor relations associated with operating
as a public entity for the full year of 1998. Interest expense decreased from
$312,000 in 1997 to $43,000 in 1998 as a result of the borrowings under a line
of credit that commenced in March 1997 were repaid in July 1997. The Company
also had more interest expense on capitalized leases during 1997.
Depreciation and amortization increased from $319,000 in 1997 to $388,000 in
1998. The Company purchased additional laboratory and office equipment in
1998.
In 1998, the Company was able to utilize net operating loss carryforwards
to offset its income and, therefore, had no provision for income taxes.
In 1997, the Company recognized a provision for income taxes of $258,000 which
was based upon prevailing federal and state tax rates reduced by the
utilization of net operating loss carryforwards to the extent permitted by the
alternative minimum tax rules.
The Company's net income in 1997 was $5,139,000 compared to net income of
$1,453,000 in 1998.
Years Ended December 31, 1996 and 1997
Contract research and development revenue increased from $318,000 in 1996
to $14,591,000 in 1997 as the Company received a licensing fee and
reimbursement of clinical development costs in connection with the BMS License
Agreement. Revenues from research grants increased from $203,000 in 1996 to
$665,000 in 1997. The increase resulted from the funding of a greater number
of grants in 1997. Sales of research reagents decreased from $98,000 in 1996
to $57,000 in 1997 resulting from decreased orders for such reagents during
1997. Interest income increased from $106,000 in 1996 to $301,000 in 1997 due
to the increase in cash available for investing as the Company received
funding from the BMS License Agreement in July 1997 and its initial public
offering in November 1997.
Research and development expenses increased from $3,700,000 in 1996 to
$7,364,000 in 1997. The increase was principally due to payments to licensors
in connection with the BMS License Agreement, additional costs of
manufacturing GMK in 1997 for the Company's Phase III clinical trials and
compensation expense related to the issuance of stock options to employees and
consultants.
General and administrative expenses decreased from $2,808,000 in 1996 to
$2,222,000 in 1997. The decrease was principally due the reduction of
professional fees and printing costs that were associated with the Company's
unsuccessful efforts to sell Common Stock in a registered public offering in
1996. Interest expense increased from $51,000 in 1996 to $312,000 in 1997 as
a result of borrowings commencing in March 1997 under a line of credit.
Depreciation and amortization remained relatively unchanged from $309,000 in
1996 to $319,000 in 1997.
In 1997, the Company recognized a provision for income taxes of $258,000
which was based upon prevailing federal and state tax rates reduced by the
utilization of net operating loss carryforwards to the extent permitted by the
alternative minimum tax rules.
The Company's net loss in 1996 was $6,143,000 compared to net income of
$5,139,000 in 1997.
Liquidity and Capital Resources
The Company has funded its 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 including those
with BMS and Roche, an initial public offering, funding under research grants
and contracts, interest on investments and the sale of research reagents.
36
During the fourth quarter of 1995 and the first quarter of 1996, the
Company raised $897,000 and $4,777,000 in net proceeds from the sale of
approximately 44,900 units and 241,203 units, respectively, in a private
placement of shares of the Company's Series C Preferred Stock in a unit
offering. Each $20.00 unit ("Series C Unit") consisted of four shares of
Series C Preferred Stock and one warrant entitling the holder to purchase one
share of Series C Preferred Stock for $5.00 any time within five years of the
date of issuance ("Series C Warrant"). In November 1997, all outstanding
shares of preferred stock of the Company were converted into shares of Common
Stock in connection with the Company's initial public offering. In addition,
during December 1995, a note payable in the aggregate principal amount of
$1,200,000, plus accrued and unpaid interest of $24,000, was converted into
approximately 61,200 Series C Units. At December 31, 1998, there were 347,249
Series C Warrants outstanding which if exercised in full would result in
$1,736,000 of net proceeds to the Company and the issuance of 260,455 shares
of Common Stock.
In March 1997, the Company entered into a credit agreement with Chase
Capital Bank (the "Chase Loan Agreement"), which provided for borrowings of up
to $2,000,000. The Company borrowed the full amount available under this
facility in drawings made between March and June 1997. Borrowings made by the
Company had a stated interest rate of prime and were used to fund working
capital. The Company repaid all outstanding borrowings in July 1997 from
proceeds of payments received by the Company under the BMS License Agreement.
Upon such repayment, the line of credit terminated. The Company's obligations
under the Chase Loan Agreement were guaranteed by two affiliates of the
Company, and in consideration of such guarantee these affiliates were issued
between March and July 1997 warrants to purchase an aggregate of 70,000 shares
of Common Stock at an exercise price of $4.00 per share as a result of the
completion of the Company's initial public offering. At December 31, 1998,
all 70,000 warrants were outstanding and fully exercisable.
In November 1997, the Company sold 2,300,000 shares of Common Stock in
its initial public offering. After deducting underwriting discounts and
commissions and other expenses, the Company received net proceeds of
$16,015,000. The net proceeds were invested in short-term, interest bearing
investment grade securities pending further application by the Company.
At December 31, 1998, the Company had cash, cash equivalents and
marketable securities totaling $24,650,000 compared with $23,624,000 at
December 31, 1997. The Company's facility lease was extended from May 1998 to
December 2000 at a monthly rental of $54,000. The Company expects to incur
during 1999 costs of approximately $500,000 for leasehold improvements and
equipment to enhance its manufacturing capabilities.
The Company believes that its present capital resources should be
sufficient to fund operations at least through the end of 2000, based on the
Company's current operating plan. No assurance can be given that there will
be no change that would consume the Company's liquid assets before such time.
The Company will require substantial funds to conduct development activities,
preclinical studies, clinical trials and other activities relating to the
commercialization of any potential products. In addition, the Company's cash
requirements may vary materially from those now planned because of results of
research and development and product testing, potential relationships with in-
licensors and collaborators, changes in the focus and direction of the
Company's research and development programs, competitive and technological
advances, the cost of filing, prosecuting, defending and enforcing patent
claims, the regulatory approval process, manufacturing and marketing and other
costs associated with the commercialization of products following receipt of
regulatory approvals and other factors. The Company has no committed external
sources of capital and, as discussed above, expects no significant product
revenues for a number of years as it will take at least that much time to
bring the Company's products to the commercial marketing stage. The Company
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 the Company's technology, to fund future
operations. There can be no assurance, however, that the Company will be able
to obtain additional funds on acceptable terms, if at all.
37
Year 2000 Compliance
The "Year 2000" problem relates to many currently installed computers,
software, and other equipment that relies on embedded technology
(collectively, "Business Systems"). These Business Systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result, in
less than one year, Business Systems used by many companies, in a very wide
variety of applications, will experience operating difficulties unless they
are modified, upgraded, or replaced to adequately process information
involving, related to or dependent upon the century change. If a Business
System used by the Company or a third party dealing with the Company fails
because of the inability of the Business System to properly read a 21st
century date, the results could have a material adverse effect on the Company.
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 Business systems failures and has established a team to
address Year 2000 risk. The team is reviewing the Company's internal
infrastructure and believes that it has identified substantially all of the
major Business Systems used in connection with its internal operations. The
Company has commenced the process of identifying and correcting the major
Business Systems that may need to be modified, upgraded, or replaced, and
expects to complete this process, along with remedial actions before the end
of 1999. Costs incurred to date to correct Year 2000 problems have been
immaterial. The Company estimates the total cost to complete any required
modifications, upgrades, or replacements of affected Business Systems will not
have a material impact on the Company's business or results of operations.
This estimate is being monitored and will be revised, if necessary, as
additional information becomes available. The Company also recognizes the
risk that suppliers of products, services, and collaborators with whom the
Company transacts business on a worldwide basis may not comply with Year 2000
requirements. The Company has initiated formal communications with
significant suppliers and collaborators to determine the extent to which the
Company is vulnerable if these third parties fail to remediate their own Year
2000 issues. The review is ongoing and the Company is unable to determine, at
this time, the probability that any material supplier or collaborator will not
be able to correct any Year 2000 problem in a timely manner. In the event any
such third parties cannot provide the Company with products, services, or
continue the collaborations with the Company, the Company's results of
operations could be materially adversely affected. Based on the above, the
Company has yet to develop a comprehensive contingency plan with respect to
the Year 2000 problem. The Company will continue to monitor its own Business
Systems and, to the extent possible, evaluate the Business Systems of its
third party suppliers and collaborators to ensure progress on this critical
matter. However, if the Company identifies significant risk related to the
Year 2000 compliance or progress deviates from anticipated timelines, the
Company will develop contingency plans as deemed necessary at that time.
Impact of the Adoption of Recently Issued Accounting Standard
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No.133"). SFAS No. 133 establishes a comprehensive
standard on accounting for derivatives and hedging activities and is effective
for periods beginning after September 15, 1999. Management does not believe
that the future adoption of SFAS No. 133 will have a material effect on the
Company's financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 1998, the Company did not hold any market risk sensitive
instruments.
38
Item 8. Financial Statements and Supplementary Data
PROGENICS PHARMACEUTICALS, INC.
Index to Financial Statements
Page
----
Report of Independent Accountants 40
Financial Statements:
Balance Sheets as of December 31, 1997 and 1998 41
Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 42
Statements of Stockholders' (Deficit) Equity for the
Years ended December 31, 1996, 1997 and 1998 43
Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 44
Notes to Financial Statements 45
39
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, stockholders' (deficit) equity and of cash flows present fairly, in
all material respects, the financial position of Progenics Pharmaceuticals,
Inc. (the "Company") at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards 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 the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 16, 1999
40
PROGENICS PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31,
-------------------------------
1997 1998
ASSETS: ------------- -------------
Current assets:
Cash and cash equivalents $ 21,737,925 $ 14,437,263
Marketable Securities 10,212,876
Accounts receivable 164,308 1,634,480
Other current assets 26,483 555,862
------------- -------------
Total current assets 21,928,716 26,840,481
------------- -------------
Marketable securities 1,886,200
Fixed assets, at cost, net of accumulated
depreciation and amortization 688,174 1,045,389
Security deposits and other assets 39,521 13,745
------------- -------------
Total assets $ 24,542,611 $ 27,899,615
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 1,226,248 $ 1,595,665
Income taxes payable 57,770
Capital lease obligations, current portion 82,859 107,346
------------- -------------
Total current liabilities 1,366,877 1,703,011
Capital lease obligations 141,402 117,166
------------- -------------
Total liabilities 1,508,279 1,820,177
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 14,320,174
shares authorized; issued and outstanding - none
Common Stock, $.0013 par value; 40,000,000 shares
authorized; shares issued and outstanding -
9,001,553 in 1997 and 9,358,207 in 1998 11,702 12,166
Additional paid-in capital 43,444,701 44,377,193
Unearned compensation (1,761,381) (1,111,018)
Accumulated deficit (18,661,030) (17,207,993)
Accumulated other comprehensive income 340 9,090
------------- -------------
Total stockholders' equity 23,034,332 26,079,438
------------- -------------
Total liabilities and stockholders'
equity $ 24,542,611 $ 27,899,615
============= =============
The accompanying notes are an integral part of the financial statements.
41
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of OPERATIONS
Years Ended December 31,
-------------------------------------------------
1996 1997 1998
------------- ------------- -------------
Revenues:
Contract research and development $ 318,370 $ 14,591,505 $ 11,135,026
Research grants 202,559 664,983 1,250,908
Product sales 98,049 56,531 180,204
Interest income 105,808 300,966 1,454,844
------------- ------------- -------------
Total revenues 724,786 15,613,985 14,020,982
------------- ------------- -------------
Expenses:
Research and development 3,700,204 7,364,117 8,296,559
General and administrative 2,807,668 2,221,667 3,840,737
Interest expense 50,706 311,522 42,729
Depreciation and amortization 308,882 319,486 387,920
------------- ------------- -------------
Total expenses 6,867,460 10,216,792 12,567,945
------------- ------------- -------------
Operating (loss) income (6,142,674) 5,397,193 1,453,037
Income taxes 257,770
------------- ------------- -------------
Net (loss) income $ (6,142,674) $ 5,139,423 $ 1,453,037
============= ============= =============
Net (loss) income per share - basic $ (2.68) $ 1.64 $ 0.16
========= ========= =========
Net (loss) income per share - diluted $ (2.68) $ 0.66 $ 0.14
========= ========= =========
The accompanying notes are an integral part of the financial statements.
42
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1996, 1997 and 1998
Accumu-
lated
Other Compre-
Preferred Stock Common Stock Additional Compre- hensive
-------------------- ----------------- Paid-in Unearned Accumulated hensive (Loss)
Shares Amount Shares Amount Capital Compensation Deficit Income Total Income
----------- -------- --------- ------- ----------- ------------ ------------- ------- ------------ ------------
Balance at
December 31, 1995 4,715,014 $ 4,715 2,294,675 $ 2,983 $19,025,723 $ (523,915) $(17,657,779) $ 851,727
Issuance of
compensatory
stock options 60,000 (60,000)
Sale of Series C
Preferred Stock
units for cash, net
of expenses ($20.00
per unit) 964,812 965 4,776,359 4,777,324
Amortization of un-
earned compensation 128,963 128,963
Net loss for the
year ended
December 31, 1996 (6,142,674) (6,142,674) $(6,142,674)
----------- -------- --------- ------- ----------- ------------ ------------- ------- ------------ ------------
Balance at
December 31, 1996 5,679,826 5,680 2,294,675 2,983 23,862,082 (454,952) (23,800,453) (384,660) $(6,142,674)
============
Issuance of
compensatory stock
options and warrants 2,634,950 (2,634,950)
Amortization of un-
earned compensation 1,328,521 1,328,521
Exercise of stock
options ($1.33 per
share) 27,000 35 35,875 35,910
Issuance of common
stock in July in
consideration for
an amendment to
an agreement
($7.50 per share) 120,000 156 899,844 900,000
Issuance of common
stock in an initial
public offering
($8.00 per share),
net of expenses 2,300,000 2,990 16,011,808 16,014,798
Conversion of pre-
ferred stock to com-
mon stock as the re-
sult of the initial
public offering (5,679,826) (5,680) 4,259,878 5,538 142
Net income for the
year ended
December 31, 1997 5,139,423 5,139,423 $ 5,139,423
Net unrealized gain
on marketable
securities $ 340 340 340
----------- -------- --------- ------- ----------- ------------ ------------- ------- ------------ ------------
Balance at
December 31, 1997 - - 9,001,553 11,702 43,444,701 (1,761,381) (18,661,030) 340 23,034,332 $ 5,139,763
============
Amortization of un-
earned compensation 650,363 650,363
Sale of common stock
under employee stock
purchase plans and
exercise of stock
options 356,654 464 907,667 908,131
Other adjustments
to stockholders
equity 24,825 24,825
Net income for the
year ended
December 31, 1998 1,453,037 1,453,037 $ 1,453,037
Changes in unrealized
gain on marketable
securities 8,750 8,750 8,750
----------- -------- --------- ------- ----------- ------------ ------------- ------- ------------ -----------
Balance at
December 31, 1998 - $ - 9,358,207 $12,166 $44,377,193 $(1,111,018) $(17,207,993) $9,090 $26,079,438 $ 1,461,787
=========== ======== ========= ======= =========== ============ ============= ======= ============ ============
Securities issued for non-cash consideration were valued based upon the Board
of Directors' estimate of fair value of the securities issued at the time the
services were rendered.
The accompanying notes are an integral part of the financial statements.
43
PROGENICS PHARMACEUTICALS, INC.
STATEMENTS of CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31,
-------------------------------------------------
1996 1997 1998
------------- ------------- -------------
Cash flows from operating activities:
Net (loss) income $ (6,142,674) $ 5,139,423 $ 1,453,037
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 308,882 319,486 387,920
Amortization of premiums, net of discounts, on
marketable securities 132,406
Expenses incurred in connection with issuance
of common stock, stock options and warrants 128,963 1,328,521 650,363
Stock issued in consideration for amending an agreement 900,000
Other 24,825
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 30,756 (50,197) (1,470,172)
(Increase) in other current assets (34,723) (5,433) (529,379)
Decrease (increase) in security deposits and other assets 40,906 (1,309) 25,776
Increase (decrease) in accounts payable and accrued expenses 1,270,099 (559,596) 410,376
(Decrease) increase in deferred lease liability (4,349) (16,735)
Increase in income taxes payable 57,770 (57,770)
------------- ------------- -------------
Net cash (used in) provided by operating activities (4,402,140) 7,111,930 1,027,382
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (96,672) (69,784) (767,688)
Purchase of marketable securities (1,886,036) (9,295,332)
Sale of marketable securities 845,000
Other 80,732
------------- ------------- -------------
Net cash used in investing activities (96,672) (1,955,820) (9,137,288)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of equity securities, net of offering expenses 4,777,324 16,050,708 908,131
Payment of capital lease obligations (191,142) (115,557) (98,887)
Proceeds from notes payable 2,000,000
Repayments of notes payable (2,000,000)
------------- ------------- -------------
Net cash provided by financing activities 4,586,182 15,935,151 809,244
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 87,370 21,091,261 (7,300,662)
Cash and cash equivalents at beginning of period 559,294 646,664 21,737,925
------------- ------------- -------------
Cash and cash equivalents at end of period $ 646,664 $ 21,737,925 $ 14,437,263
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 50,706 $ 83,655 $ 42,729
Cash paid for income taxes 200,000 140,000
Supplemental disclosure of noncash investing and financing activities:
Increase in capital lease obligations $ 89,000 $ 95,000 $ 99,138
Fixed assets included in accounts payable and accrued expenses 40,959
The accompanying notes are an integral part of the financial statements.
44
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
products for the treatment and prevention of cancer, viral diseases,
including human immunodeficiency virus ("HIV") infection, and other
diseases. Prior to July 1997, the Company was in the development stage.
The Company was incorporated in Delaware on December 1, 1986. The
Company has no products approved for sale by the U.S. Food and Drug
Administration. In addition to the normal risks associated with a new
business venture, 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.
As of December 31, 1998, the Company had cash, cash equivalents and
marketable securities of $24.6 million. The Company estimates that this
amount will enable it to continue to operate beyond one year. In the
future, the Company will need to raise additional financing through
public or private equity financings, collaborative or other arrangements
with corporate sources, or other sources of financing to fund operations.
There can be no assurance that such additional financing, if at all
available, can be obtained on terms reasonable to the Company. In the
event the Company is unable to raise additional capital, operations will
need to be scaled back or discontinued.
2. Summary of Significant Accounting Policies:
Revenue Recognition
The Company has derived all of its product revenue from the sale of
research reagents to four customers. 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 reagent and cost of product sales is not material.
The Company has been awarded government research grants from the National
Institutes of Health (the "NIH"). The NIH grants are used to subsidize
the Company's research projects ("Projects") regarding HIV. NIH 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.
Payments 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 are used to subsidize the
Company's research and development efforts. 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.
Continued
45
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
Upon the achievement of defined events certain Collaborators are required
to make milestone payments to the Company. Such amounts are included in
contract research and development revenue and are recognized as revenue
upon the achievement of the event and when collection of the resulting
receivable is probable.
Interest income is recognized as earned.
For each of the three years in the period ended December 31, 1998, all of
the Company's research grant revenue and contract research and
development revenue came from the NIH and the Collaborators,
respectively.
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 the NIH 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.
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:
Machinery and equipment 5-7 years
Furniture and fixtures 5 years
Leasehold improvements Life of lease
Continued
46
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
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.
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,
1998 and 1997, the Company had invested approximately $14,208,000 and
$20,787,000 in funds with two major investment companies and held
approximately $229,000 and $951,000 in a single commercial bank,
respectively.
Net (Loss) Income 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) income per share is computed on the basis of net (loss)
income for the period divided by the weighted average number of shares of
common stock outstanding during the period. Diluted net (loss) income
per share includes, where dilutive, the number of shares issuable upon
exercise of outstanding options and warrants and the conversion of
preferred stock. Disclosures required by SFAS No. 128 have been included
in Note 12.
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 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 the
recoverability of fixed assets and deferred taxes. Actual results could
differ from those estimates. See also Notes 1 and 7(c).
Continued
47
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
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
fair value of the Company's common stock on the grant date is greater
than the amount an employee must pay to acquire the stock.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
including pro forma operating results had the Company prepared its
financial statements in accordance with the fair-value-based method of
accounting for stock-based compensation, have been included in Note 8.
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.
Comprehensive (Loss) Income
For the year ended December 31, 1998, the Company adopted statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). Comprehensive (loss) income 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) income of the Company includes net (loss) income adjusted for the
change in net unrealized gain or loss on marketable securities. The net
effect of income taxes on comprehensive (loss) income is immaterial. The
disclosures required by SFAS No. 130 for the years ended December 31,
1996, 1997 and 1998 have been included in the Statements of Stockholders'
(Deficit) Equity.
Reclassifications
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the 1998 presentation.
Continued
48
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, 1997 and 1998, 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, 1997 and 1998:
Unrealized Holding
Amortized Fair -------------------------
Cost Basis Value Gains (Losses) Net
----------- ----------- ------- -------- ------
1997:
Corporate debt
securities $ 1,885,860 $ 1,886,200 $ 1,496 $(1,156) $ 340
=========== =========== ======= ======== ======
1998:
Corporate debt
securities $10,203,786 $10,212,876 $12,296 $(3,206) $9,090
=========== =========== ======= ======== ======
For the years ended December 31, 1997 and 1998, there were no realized
gains and losses from the sale of marketable securities. 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.
4. Fixed Assets:
Fixed assets, including amounts under capitalized lease obligations,
consist of the following:
December 31,
-----------------------------
1997 1998
------------- -------------
Machinery and equipment $ 1,702,892 $ 1,813,726
Furniture and fixtures 138,415 216,810
Leasehold improvements 29,702 399,477
------------- -------------
1,871,009 2,430,013
Less, Accumulated depreciation and
amortization (1,182,835) (1,384,624)
------------- -------------
$ 688,174 $ 1,045,389
============= =============
Continued
49
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
---------------------------
1997 1998
----------- -----------
Accounts payable $ 517,714 $1,140,442
Fees payable to Scientific Advisory Board
members 38,500 16,000
Accrued payroll and related costs 330,480 144,615
Legal and accounting fees payable 322,819 294,608
Deferred lease liability, current portion 16,735
----------- -----------
$1,226,248 $1,595,665
=========== ===========
6. Stockholders' Equity:
Subsequent to the Company's initial public offering of its common stock
as discussed below, the Company is authorized to issue 40,000,000 shares
of common stock, par value $.0013 ("Common Stock"), and 14,320,174 shares
of preferred stock, par value $.001. The Board has the authority to
issue common and preferred shares, in series, with rights and privileges
determined by the Board.
Prior to the Company's initial public offering ("IPO"), 4,000,000
preferred shares were designated as Series A Preferred Stock ("Series
A"), 2,500,000 shares were designated as Series B Preferred Stock
("Series B") and 3,750,000 shares were designated as Series C Preferred
Stock ("Series C") (collectively the "Preferred Stock").
In connection with the issuance of Series C stock in 1995 and 1996, the
Company issued 347,249 five-year warrants (the "C Warrants"). Each C
Warrant, subsequent to the IPO, entitles the holder to purchase .75 share
of Common Stock at $6.67. The number of C Warrants and their exercise
price are subject to adjustment in the event the Company issues
additional shares of Common Stock at below defined per share prices. As
of December 31, 1998, 347,249 C Warrants were issued and outstanding and
fully exercisable into 260,455 shares of Common Stock.
During November 1997, the Company completed an IPO of 2,300,000 shares of
its Common Stock, in which the Company raised approximately $16 million,
net of expenses and underwriting discount. Concurrent with the IPO, all
outstanding shares of Preferred Stock, were converted into 4,259,878
shares of Common Stock and thereafter retired.
Continued
50
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
7. Commitments and Contingencies:
a. Operating Leases
The Company leased office and laboratory space under noncancelable
lease agreements (the "Leases"). The Leases provided for escalations
of the minimum rent during the lease term as well as additional
charges based upon usage of certain utilities in excess of defined
amounts ("Additional Utility Charges"). The Company recognized rental
expense from the Leases on the straight-line basis. During the years
ended December 31, 1996, 1997 and 1998, approximately $4,000, $33,000
and $17,000, respectively, of previously recognized rent expense,
which had been included as a deferred lease liability, was paid.
On January 27, 1998, the Company entered into a sublease agreement
("Sublease") consolidating and extending the Leases for office and
laboratory space from May 1, 1998 through December 31, 1999. Fixed
monthly rental expense totals approximately $54,000. The Sublease can
be extended at the option of the Company for three additional one-year
terms; however, the second and third options are subject to approval
by the landlord.
The Company also leases office equipment and an automobile under
noncancelable operating leases. The leases expire at various times
through March 2002.
As of December 31, 1998, future minimum annual payments under all
operating lease agreements, including the Sublease, are as follows:
Minimum
Years ending Annual
December 31, Payments
------------ --------
1999 657,829
2000 8,569
2001 7,534
2002 1,521
--------
$675,453
========
Rental expense totaled approximately $645,000, $628,000 and $672,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
Additional Utility Charges, were not material for these periods.
Continued
51
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
b. Capital Leases
The Company leases certain equipment under various noncancelable
capital lease agreements. The leases are for periods ranging from
three to five years, after which the Company: (i) either has the
option or is required to purchase the equipment at defined amounts or
(ii) may extend the lease for up to one additional year at defined
monthly payments or (iii) is required to return the equipment, as per
the respective lease agreements.
As of December 31, 1998, minimum annual payments under all capital
leases, including required payments to acquire leased equipment, are
as follows:
Minimum
Years Ending Annual
December 31, Payments
------------ --------
1999 $146,644
2000 102,994
2001 37,069
2002 5,175
--------
291,882
Less, Amounts representing interest (67,370)
---------
Present value of net minimum
capital lease payments $224,512
=========
Leased equipment included as a component of fixed assets was
approximately $835,000 and $388,000 at December 31, 1997 and 1998,
respectively; related accumulated depreciation was approximately $473,000
and $148,000 for the same respective periods.
c. Licensing and Corporate Collaboration 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 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.
Continued
52
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
The Company (as licensee) also has a non-exclusive licensing
agreement with Stanford University whereby the Company has the non-
exclusive, non-transferable right to use certain technology owned by
the university. According to the terms of the agreement, the
Company will be required to remit royalties based upon the greater
of minimum royalties, as defined or various percentages of sales of
products resulting from the use of licensed patent rights, as
defined. Royalties shall continue to be payable, irrespective of
termination of this license agreement, until such time as all sales
of products which utilize the licensed technology shall have ceased.
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. Early
termination of the 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 agreement, there
can be no assurances that the agreement will not be terminated.
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. 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.
Continued
53
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. ("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, 1998,
the restrictions on 11,250 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 would 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.
Continued
54
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
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
worldwide license to manufacture, use and sell products resulting
from development of the Company's products related to certain
therapeutic cancer vaccines (the "Cancer Vaccines"). Upon execution
of the agreement, BMS made non-refundable cash payments of $9.5
million, as reimbursement for expenses previously incurred by the
Company in the development of the Cancer Vaccines, $2.0 million as a
licensing fee and approximately $1.8 million as reimbursement of the
Company's budgeted clinical development costs for the Cancer
Vaccines for the period April 15, 1997 through September 30, 1997.
In addition, BMS is obligated to make future non-refundable payments
as defined upon the achievement of specified milestones and pay
royalties on any product sales. BMS is also required to subsidize
ongoing development, clinical trials and regulatory filings
("Development Costs") conducted by the Company on a time and
material basis related to the Cancer Vaccines. BMS's funding of
future Development Costs are refundable by the Company only to the
extent that the Company receives such funding in advance and fails
to expend such amounts for their intended purposes. The Company
recognized as revenue the reimbursement of prior expenses and the
licensing fee upon receipt of the funds. The Company recognizes
revenue for the funding of Development Costs on a pro rata basis as
the related expenses are incurred.
The BMS License Agreement and related sublicenses terminate at
various times, generally upon the expiration or abandonment of the
related patents. The agreements can also be terminated by either
party upon a material uncured breach by the other party. BMS has
the further right to terminate the BMS License Agreement (including
its funding and milestone obligations) as to specified licensed
products at specified times.
Continued
55
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
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. Such funding will continue for a minimum of two years from
the Effective Date. 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
Company recognizes as revenue milestone payments as earned and
research reimbursements on a pro rata basis as the underlying costs
are incurred. The collaboration has a term of three years and may
be extended by mutual agreement. The Roche Agreement shall remain
in force until the expiration of all obligations to pay royalties
pursuant to any licenses specified by the Roche Agreement. Roche
may terminate the Roche Agreement at any time with prior written
notice, at which time the license granted by the Company will
terminate. Either party may terminate the Roche Agreement if the
other party defaults on its obligations and such default is not
cured within sixty days of written notice of such default.
Continued
56
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
In connection with all the agreements discussed above, the Company has
recognized research and development expenses, including transaction
costs, totaling approximately $170,500, $1,901,000 and $550,000 for
the years ended December 31, 1996, 1997 and 1998, respectively. Such
expenses include the fair value of the Restricted Shares and 120,000
shares of Common Stock issued in July 1997. In addition, as of
December 31, 1998, remaining payments associated with milestones and
defined objectives with respect to the above agreements total
$650,000. Future annual minimum royalties under the licensing
agreements described in (i) through (iii) above are not significant.
d. 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
$268,000, $971,000, and $482,000 for the years ended December 31,
1996, 1997 and 1998, respectively. Such expenses include the fair
value of stock options of approximately $112,000, $772,000 and
$329,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
8. Stock Option and Employee Stock Purchase Plans:
The Company adopted three stock option plans, the Non-Qualified Stock
Option Plan, the Stock Option Plan and the Amended Stock Incentive Plan
(individually the "89 Plan," "93 Plan" and "96 Plan," respectively, or
collectively, the "Plans"). Under the 89 Plan, the 93 Plan and the 96
Plan as amended, a maximum of 375,000, 750,000 and 2,000,000 shares of
Common Stock, respectively, are available for awards to employees,
consultants, directors and other individuals who render services to the
Company (collectively, "Optionees"). The Plans contain certain anti-
dilution provisions in the event of a stock split, stock dividend or
other capital adjustment as defined. The 89 Plan and 93 Plan provide for
the Board, or the Compensation Committee ("Committee") of the Board, to
grant stock options to Optionees and to determine the exercise price,
vesting term and expiration date. The 96 Plan provides for the Board or
Committee to grant to Optionees stock options, stock appreciation rights,
restricted stock performance awards or phantom stock, as defined
(collectively "Awards"). The Committee will also determine the term and
vesting of the Award and the Committee may in its discretion accelerate
the vesting of an Award at any time. Options granted under the Plans
generally vest pro rata over five to ten year periods and have terms of
ten to twenty years. Except as noted below, the exercise price of
outstanding awards was equal to the fair value of the Company's Common
Stock on the dates of grant. Under the 89 Plan, for a period of ten
years following the termination for any reason of an Optionee's
employment or active involvement with the Company, as determined by the
Board, the Company has the right to repurchase any or all shares of
Common Stock held by the Optionee and/or any or all of the vested but
unexercised portion of any option granted to such Optionee at a purchase
price defined by the 89 Plan. The 89 Plan terminated in April, 1994 and
the 93 Plan and the 96 Plan will terminate in December, 2003 and October,
2006, respectively; however, options granted before termination of the
Plans will continue under the respective Plans until exercised, cancelled
or expired.
Continued
57
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
The following table summarizes stock option information for the Plans as
of December 31, 1998:
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
---------------- ----------- ----------- --------- ----------- ---------
$1.33 188,859 5.5 yr. $ 1.33 176,109 $ 1.33
$ 3.67 - $ 5.33 1,164,139 6.5 yr. $ 4.47 671,723 $ 4.55
$ 6.67 - $10.00 377,500 9.7 yr. $ 9.26 3,000 $ 6.67
$10.50 - $14.50 541,800 10.0 yr. $12.03 2,300 $14.07
$17.00 - $19.38 16,000 9.2 yr. $18.34 5,332 $18.34
----------- ----------
$ 1.33 - $19.28 2,288,298 7.8 yr. $ 6.89 858,464 $ 4.01
=========== ==========
Continued
58
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
Transactions involving stock option awards under the Plans during 1996,
1997 and 1998 are summarized as follows:
Weighted-
Average
Number Exercise
of Shares Price (2)
---------- ---------
Balance outstanding, December 31, 1995 970,736 $ 4.39
1996: Granted 94,500 $ 6.56
Cancelled (24,000) $ 5.33
----------
Balance outstanding, December 31, 1996 1,041,236 $ 4.57
1997: Granted (1) 848,000 $ 4.00
Cancelled (1) (302,888) $ 5.36
Exercised (27,000) $ 1.33
----------
Balance outstanding, December 31, 1997 1,559,348 $ 4.17
1998: Granted 930,800 $11.07
Cancelled (10,700) $ 7.89
Exercised (191,150) $ 4.54
----------
Balance outstanding, December 31, 1998 2,288,298 $ 6.89
==========
(1) Includes 216,225 options repriced, as discussed below
(2) For all options granted in 1996 and 1998 and 2,100 in 1997, the
option exercise price equaled the fair value of the Company's
common stock on the date of grant. For 1997, 845,900 options were
granted, with an exercise price below the fair market value of the
Company's common stock on the date of grant.
As of December 31, 1996, 1997 and 1998, 488,553, 818,586, and 858,464
options with weighted average exercise prices of $3.59, $3.92 and $4.01,
respectively, were exercisable under the Plans.
As of December 31, 1998, shares available for future grants under the 93
Plan and the 96 Plan amounted to 35,362 and 560,700, respectively.
The Company, during 1997, granted 520,900 stock options (including
216,225 options repriced as discussed below) to employees, with an
average exercise price of $4.00, which was 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, of one to five years, 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, 1997 and 1998 has been
included within stockholders equity. For the years ended December 31,
1997 and 1998, the annual amortization of Unearned Compensation for
employees totaled $322,296 and $314,902. As of December 31, 1998 the
unamortized portion of Unearned Compensation for employees totaled
$417,502.
Continued
59
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
The Company since its inception has granted an aggregate of 1,082,000
options with a weighted-average exercise price of $3.86 to consultants in
consideration for services. The fair values of these options have been
included as Unearned Compensation and are being amortized as compensation
expense on a pro rata basis over the service period ranging from four
years to ten years. For the years ended December 31, 1996, 1997 and 1998
the annual amortization of Unearned Compensation for consultants totaled
$128,963, $778,358 and $335,461, respectively. The above amounts
included the fair value of stock options issued to consultants as
discussed in Note 7(d). As of December 31, 1998, the unamortized portion
of Unearned Compensation for consultants totaled $693,516.
On April 1, 1997, the exercise price of 216,225 options granted under the
Plans, having exercise prices in excess of $4.00 per share, were reduced
to $4.00 per share. The exercise price of the repriced options was less
than the fair value of the underlying stock on the date of repricing.
Accordingly, the Company is recognizing compensation expense on a pro
rata basis over the respective remaining options' vesting periods of one
to five years for the difference between the estimated fair value of the
Common Stock on the date the option was repriced and $4.00. All other
aspects of the options remain unchanged.
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 of the Company's Common Stock at the
date of grant, as determined by the Board of Directors. 375,000 of the
options vest pro rata over a period of four years, with the remaining
375,000 options vesting in full on the tenth anniversary of the date of
grant; however, vesting with respect to the options vesting on the tenth
anniversary will be accelerated in the event of the effective date of an
initial public offering of the Company's Common Stock that yields certain
gross per share amounts, as defined, or immediately before the closing of
an acquisition of the Company. As the result of the Company's IPO and
subsequent increase in the fair market value of the Company's Common
Stock, 300,000 options vested. During 1998, 275,226 options, with a
weighted-average exercise price of $5.50 per share, were exercised.
Continued
60
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
The following table summarizes stock option information for the Executive
Plan as of December 31, 1998:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- ----------- --------- ----------- ---------
$5.33 474,774 5.0 yrs. $5.33 399,774 $5.33
As of December 31, 1996, 1997 and 1998, 300,000, 450,000 and 399,774
options with weighted-average exercise prices of $5.45, $5.43 and $5.33,
respectively, were exercisable under the Executive Plan.
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 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 150,000 and 50,000
shares of Common Stock, respectively.
Continued
61
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
Purchases of Common Stock during the year ended December 31, 1998 are
summarized as follows:
Qualified Plan Non-Qualified Plan
----------------------------- -----------------------
Shares Price Shares Price
Purchased Range Purchased Range
--------- --------------- --------- -----
3,494 $10.63 - $12.96 - -
At December 31, 1998, shares reserved for future purchases under the
Qualified and Non-Qualified Plans were 146,506 and 50,000, respectively.
The following table summarizes the pro forma operating results of the
Company had compensation costs for the Plans, the Executive Plan and the
Purchase Plans been determined in accordance with the fair value based
method of accounting for stock based compensation as prescribed by SFAS
No. 123. Since option grants awarded during 1996, 1997 and 1998 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,
---------------------------------------
1996 1997 1998
------------ ---------- ----------
Pro forma net (loss) income $(6,189,086) $5,016,206 $1,138,602
============ ========== ==========
Pro forma net (loss) income
per share, basic $(2.70) $1.60 $0.13
======= ===== =====
Pro forma net (loss) income
per share, diluted $(2.70) $0.65 $0.11
======= ===== =====
For the purpose of the above pro forma calculation, the fair value of
each option granted was estimated on the date of grant using the Black-
Scholes option pricing model. The weighted-average fair value of the
options granted during 1996, 1997 and 1998 was $4.60, $3.91 and $6.87
respectively. The following assumptions were used in computing the fair
value of option grants: expected volatility of 81% in 1996 and 1997 and
71% in 1998; expected lives of 5 years after vesting; zero dividend yield
and weighted-average risk-free interest rates of 6.0% in 1996, 6.72% in
1997 and 4.45% in 1998.
Continued
62
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
9. 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 25% of up to the first 8% of compensation that eligible
employees contribute 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
$10,000, $9,000 and $27,000 to the Amended Plan for the years ended
December 31, 1996, 1997 and 1998, respectively.
10. Income Taxes:
There is no tax provision for the year ended December 31, 1998 as the
Company was able to utilize net operating loss carryforwards that
previously had been fully provided for. The effects of the alternative
minimum tax on the 1998 provision were immaterial.
The tax provision for the year ended December 31, 1997 has been computed
based upon the prevailing federal and state tax rates, offset by the
utilization of net operating loss carryforwards to the extent permitted
by the alternative minimum tax rules of the federal and state tax codes.
There is no benefit for federal or state income taxes for the year ended
December 31, 1996, since the Company has incurred operating losses and
has established a valuation allowance equal to the total deferred tax
asset.
The differences between the Company's effective income tax rate,
(benefit) provision, and the Federal statutory rate is reconciled below:
Years Ended December 31,
-------------------------
1996 1997 1998
----- ----- -----
Federal statutory rate (34)% 34 % 34 %
State income taxes, net of Federal (6) 6 6
benefit
Research and experimental tax credit (2) (3) (17)
Change in valuation allowance 42 (32) (23)
----- ----- -----
- % 5 % - %
===== ===== =====
Continued
63
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
The tax effect of temporary differences, net operating losses and tax
credits carryforwards as of December 31, 1997 and 1998 are as follows:
December 31,
--------------------------
1997 1998
------------ ------------
Deferred tax assets and valuation allowance:
Net operating loss carry-forwards $ 1,638,783 $ 2,669,911
Fixed assets 98,894 108,500
Deferred charges 5,726,342 4,762,978
Research and experimental tax credit
carry-forwards 831,670 1,083,944
Alternative minimum tax credit 211,384 211,384
Valuation allowance (8,507,073) (8,836,717)
------------ ------------
$ - $ -
============ ============
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, 1998, the Company has available, for tax purposes,
unused net operating loss carryforwards of approximately $6.5 million
which will expire in various years from 2002 to 2013. The Company's
research and experimental tax credit carryforwards expire in various
years from 2003 to 2013. In addition, the Company's alternative minimum
tax credit can be carried forward indefinitely. Future ownership changes
may limit the future utilization of these net operating loss and tax
credit carryforwards as defined by the federal and state tax codes.
11. Line of Credit:
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
million. Outstanding borrowings accrue interest, payable monthly, at the
bank's prime rate of interest. The Line expired on July 31, 1997. The
repayment of the Line was guaranteed by two affiliates of a stockholder
of the Company ("Affiliates").
In consideration for the guarantee of the Line, the Company issued 70,000
warrants to the Affiliates. Such warrants vested immediately and expire
after five years. The exercise price was determined to be $4.00 per
share in November 1997 upon completion of the Company's IPO. The
aggregate fair value of the warrants totaled $227,867, which was expensed
during the year ended December 31, 1997.
Continued
64
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
12. Net (Loss) Income Per Share:
The Company's basic net (loss) income per share amounts have been
computed by dividing net (loss) income by the weighted-average number of
common shares outstanding during the period. For the year ended December
31, 1996, the Company reported net losses and, therefore, common stock
equivalents were not included since such inclusion would have been anti-
dilutive. For the years ended December 31, 1997 and 1998, the Company
reported net income and, therefore, all common stock equivalents, with
exercise prices less than the average fair market value of the Company's
Common Stock for the year, have been included in the calculation, as
follows:
Net Income Per
(Loss) Shares Share
(Numerator) (Denominator) Amount
------------- ------------- ------
1998:
Basic:
Net income $ 1,453,037 9,067,594 $0.16
============ ======
Effect of Dilutive Securities
Options 1,465,119
Warrants 194,420
---------
Diluted:
Amounts used in computing per
share data $ 1,453,037 10,727,133 $0.14
============= ========== ======
1997:
Basic:
Net income $ 5,139,423 3,127,855 $1.64
============= ======
Effects of Dilutive Securities
Options 829.156
Warrants 77,211
Effect of conversion of
preferred stock 3,769,700
---------
Diluted:
Amounts used in computing per
share data $ 5,139,423 7,803,922 $0.66
============= ========= ======
1996:
Basic and Diluted:
Net (loss) $ (6,142,674) 2,294,675 ($2.68)
============= ========= =======
Continued
65
PROGENICS PHARMACEUTICALS, INC.
Notes to Financial Statements, Continued
For the years ended December 31, 1996, 1997 and 1998 common stock
equivalents which have been excluded from diluted per share amounts
because their effect would have been anti-dilutive, include the
following:
1996 1997 1998
------------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- -------- -------- -------- -------- --------
Options and
Warrants 2,051,691 $5.14 - - 16,000 $18.34
Convertible
Preferred
Stock 4,259,878
66
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's executive officers is set forth in
Item 1 and is incorporated herein by reference. Information regarding the
Company's directors 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
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.
PART IV
Item 14. 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 and Supplemental Data
Balance Sheets at December 31, 1997 and 1998
Statements of Operations for the years ended December 31, 1996, 1997 and
1998
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1997 and 1998
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
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.
67
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 30, 1999
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 Title Date
- - --------------------------------- ------------------------ --------------
/s/ Paul J. Maddon Chairman of the Board March 30, 1999
- - --------------------------------- and Chief Executive
Paul J. Maddon, M.D., Ph.D. Officer (Principal
Executive Officer)
/s/ Ronald J. Prentki President and Director March 30, 1999
- - ---------------------------------
Ronald J. Prentki
/s/ Robert A. McKinney Vice President, Finance March 30, 1999
- - --------------------------------- and Operations and
Robert A. McKinney Treasurer (Principal
Financial and
Accounting Officer)
/s/ Charles A. Baker Director March 30, 1999
- - ---------------------------------
Charles A. Baker
/s/ Mark F. Dalton Director March 30, 1999
- - ---------------------------------
Mark F. Dalton
/s/ Stephen P. Goff, Ph.D. Director March 30, 1999
- - ---------------------------------
Stephen P. Goff, Ph.D..
/s/ Kurt W. Briner Director March 30, 1999
- - ---------------------------------
Kurt W. Briner
/s/ Paul F. Jacobson Director March 30, 1999
- - ---------------------------------
Paul F. Jacobson
/s/ David A. Scheinberg Director March 30, 1999
- - ---------------------------------
David A. Scheinberg, M.D., Ph.D.
68
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- - --------- -------------------------------------------------------------------
*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 1996 Stock Incentive Plan ++
*10.6 Form of Indemnification Agreement ++
10.7 Employment Agreement dated as of December 22, 1998 between
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 Registrant
and Ronald J. Prentki, as amended by Amendment No. 1 to
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 (Exhibit 10.13 to
the 1993 Form 10-K)
*+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 Lease dated June 30, 1994 between the Registrant and Keren Limited
Partnership
*+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
69
*+10.27 Letter agreement dated as of April 15, 1997 among Bristol-Myers
Squibb Company, Registrant and the Sloan-Kettering Institute for
Cancer Research
*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
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
_____________
*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.
+Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.
++Management contract or compensatory plan or arrangement.
70
Exhibit 10.7
EMPLOYMENT AGREEMENT
Agreement made as of the 22nd day of December, 1998, between
PROGENICS PHARMACEUTICALS, INC., a Delaware corporation (the "Corporation")
with its principal place of business at Old Saw Mill River Road, Tarrytown, New
York 10591 and PAUL J. MADDON ("MADDON") residing at 191 Fox Meadow Road,
Scarsdale, New York 10583.
RECITALS
A. The Corporation is engaged in the business of developing and
marketing pharmaceutical products.
B. MADDON is now serving as Chairman, Chief Executive Officer and
Chief Science Officer of the Corporation pursuant to an Employment Agreement
dated as of December 15, 1993.
C. The Corporation wishes to continue to employ MADDON as Chairman,
Chief Executive Officer and Chief Science Officer and MADDON wishes to continue
to serve the Corporation in such capacities pursuant to the terms of this
Employment Agreement.
AGREEMENT
In consideration of the facts mentioned above and the mutual promises
set forth below, the parties agree as follows:
1. EMPLOYMENT.
The Corporation hereby employs MADDON as Chairman, Chief
Executive Officer and Chief Science Officer, and MADDON hereby agrees to serve
the Corporation in such capacities.
2. TERM.
2.1 "The Term" as used herein shall mean the Initial Term plus any
Renewal Term.
2.2 This Agreement will be for a term of Three (3) years (the
"Initial Term"), commencing on the date hereof, unless sooner terminated
pursuant to Section 8.
2.3 Provided MADDON is not in default under this Agreement at the
time the relevant Term expires, this Agreement shall be renewed for five
successive periods of One (1) year each ("Renewal Term(s)"), unless either the
Corporation or MADDON gives notice to the other of its or his intention not to
renew at least Ninety (90) days before the end of the Initial Term or any
Renewal Term.
3. EMPLOYEE'S DUTIES.
3.1 As Chairman and Chief Executive Officer, MADDON will have broad
management responsibilities for the activities of the Corporation. As Chief
Science Officer, MADDON's duties shall include, without limitation, formulating
the scientific strategies of the Corporation in conjunction with the Scientific
Advisory Board, presenting such strategies to the Board of Directors of the
Corporation (the "Board") for review and, subject to approval of the Board,
directing the implementation of such strategies, as well as overseeing all
aspects of the Corporation's scientific operations.
3.2 Except as provided herein, MADDON will devote substantially all
of his business time and energies solely to the business and affairs of the
Corporation during the Term. MADDON presently serves on the editorial boards
of two scientific journals and on committees of the National Institute of
Health, is a member of the Board of Directors of the New York Biotechnology
Association, and consults for various organizations and may continue these
activities and such other similar activities approved by the Corporation during
the Term. MADDON shall not, at any time during the Term, directly or
indirectly, enter the employ of, or render any service to, any person,
partnership, association, corporation or other entity other than the
Corporation, without prior consent of the Board.
2
3.3 MADDON will use his best efforts, skill and abilities to promote
the Corporation's interests and perform any duties which may be reasonably
assigned to him by the Board.
3.4 MADDON consents to and agrees to cooperate with the Corporation
to continue the Key-man life insurance on MADDON's life and to increase such
insurance to such amount determined appropriate by the Board from time to time.
3.5 The Corporation shall use its best efforts to cause MADDON to be
nominated to the Board of Directors of the Corporation.
4. REMUNERATION.
4.1 The Corporation will pay MADDON, for all services to be rendered
under this Agreement, an annual salary ("Salary"), payable in accordance with
the normal payroll policy of the Corporation, of Four Hundred Thousand
($400,000) Dollars, adjusted as hereinafter provided, for the Term.
4.2 Each year on the anniversary date of this Agreement, the annual
Salary then in effect shall be multiplied by 103% (or such higher percentage as
the Board shall determine in its sole discretion) and the product shall be the
adjusted Salary for the next succeeding twelve (12) month period during the
Term.
4.3 During the Term of this Agreement, MADDON may receive an annual
bonus payment reflecting his contribution to the Corporation and the
Corporation's results in an amount the Board determines appropriate in its sole
discretion.
4.4 This Agreement will not be deemed abrogated or terminated if the
Corporation, in its discretion, determines to increase the Salary of MADDON for
any period of time, or if MADDON accepts an increase; but, except as
specifically provided in this Agreement, the Corporation shall have no
obligation to make any increase in the Salary. Any increase in MADDON's Salary
by the Corporation shall be incorporated into his annual Salary then in effect
for purposes of future payments of and adjustments to the Salary, and no
reduction in his salary shall be made without his written consent.
3
5. STOCK OPTIONS.
5.1 At the date hereof, and in addition to his interest in the
Corporation's 1998 Non-Qualified Employee Stock Purchase Plan, MADDON is the
owner of 792,010 shares of Common Stock of the Corporation and options to
purchase 474,773 shares of such Common Stock (AExisting Options@), which the
Corporation acknowledges are fully vested in MADDON and exercisable (except for
75,000 Valuation Based Options which are subject to vesting and becoming
exercisable in the future) and are not subject to any repurchase or other
restrictions except pursuant to applicable securities and other laws. The
Corporation hereby agrees that for purposes of the Existing Options, except as
set forth above, the 1993 Agreement referred to in Section 19 below shall have
terminated at the end of the Initial Term referred to therein.
5.2 Traditional Stock Options. The Corporation is concurrently
herewith granting to MADDON under the Corporation's 1996 Stock Incentive Plan,
as amended, irrevocable options to purchase up to 300,000 shares of the
Corporation's Common Stock (the "Traditional Options"), as follows:
a. Nonqualified Options. Non-qualified options ("NQOs") at an
exercise price of $12.00 per share, representing the fair market value per
share of the Common Stock as of the close of business on December 21,
1998. Subject to the forfeiture and acceleration provisions set forth
below, the NQOs shall have a duration of ten (10) years from the date
hereof and vest and be exercisable as follows:
Tranche Cumulative
Tranche Exercisable as to Exercisable As
Vesting Date Shares % Total Of Vesting Date
Jan 1, 1999 91,667 33-1/3% 91,667 Shares
Jan 1, 2000 91,667 33-1/3% 183,334 Shares
Jan 1, 2001 91,667 33-1/3% 275,001 Shares
4
b. Incentive Stock Options. Options which constitute
Incentive Stock Options (AISOs@), as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the ACode@), at an exercise
price of $13.20 per share, representing 110% of the fair market value per
share of the Common Stock as of the close of business on December 21,
1998. Subject to the forfeiture and acceleration provisions set forth
below, the ISOs shall have a duration of five (5) years from the date
hereof and vest and be exercisable as follows:
Tranche Cumulative
Tranche Exercisable as to Exercisable As
Vesting Date Shares % Total Of Vesting Date
Jan 1, 1999 8,333 33-1/3% 8,333 Shares
Jan 1, 2000 8,333 33-1/3% 16,666 Shares
Jan 1, 2001 8,333 33-1/3% 24,999 Shares
5.3 Valuation Based Options. In addition to the Traditional
Options, the Corporation is concurrently herewith granting to MADDON under the
Corporation's 1996 Stock Incentive Plan, as amended, irrevocable NQOs to
purchase up to 225,000 shares of the Corporation's Common Stock at a price of
$12.00 per share, representing the fair market value per share of the Common
Stock as of the close of business on December 21, 1998 (the "Valuation Based
Options"). The Valuation Based Options shall vest nine (9) years and eleven
(11) months from the date hereof, and have a duration of ten (10) years from
the date hereof, except as otherwise provided herein. MADDON may exercise the
Valuation Based Options in accordance with the following exercise provisions:
a. The portion of the Valuation Based Options whose vesting
shall accelerate and which MADDON may exercise at any time thereafter
shall be as follows:
(1) If the Average Price is less than Fifteen Dollars ($15.00)
per share, then no portion of the Valuation Based Options vesting
shall accelerate or may be exercised.
(2) If either (i) during the period from the date hereof
through December 21, 2001, the Average Price is equal to or greater
than Fifteen Dollars ($15.00) per share but less than Nineteen
Dollars ($19.00) per share or (ii) during the period from
December 22, 2001 through November 21, 2008 the Average Price is
equal to or greater than Thirty Dollars ($30.00) per share, then the
vesting of Valuation Based Options for 75,000 Shares shall accelerate
and may be exercised at any time thereafter.
(3) If either (i) during the period from the date hereof
through December 21, 2001, the Average Price is equal to or greater
than Nineteen Dollars ($19.00) per share but less than Twenty-four
Dollars ($24.00) per share or (ii) during the period from
December 22, 2001 through November 21, 2008 the Average Price is
equal to or greater than Thirty Dollars ($30.00), then the vesting of
5
Valuation Based Options for an additional 75,000 Shares shall
accelerate and may be exercised at any time thereafter.
(4) If either (i) during the period from the date hereof
through December 21, 2001, the Average Price is equal to or greater
than Twenty-four Dollars ($24.00) per share or (ii) during the period
from December 22, 2001 through November 21, 2008 the Average Price is
equal to or greater than Thirty Dollars ($30.00), then the vesting of
Valuation Based Options for an additional 75,000 Shares shall
accelerate and may be exercised at any time thereafter.
b. "Average Price" shall mean the thirty (30) trading day average
market price of one share of Common Stock, determined by the last reported
sales price of the Common Stock on the NASDAQ National Market (or such
other exchange as may be the principal exchange on which the Corporation=s
Common Stock is listed) on each trading day during such thirty trading day
period that any such sale shall have been reported.
5.4 General Terms of Options. The Traditional Options and the
Valuation Based Options (collectively, the "Options") are set forth in written
stock option agreements being executed and delivered to MADDON
contemporaneously with the execution and delivery of this Agreement. The
option agreements provide that in the event MADDON wishes to exercise the
exercisable portion of an option, MADDON shall send written notice to the
Corporation specifying a date (not later than twenty (20) business days and not
earlier than the next business day following the date such notice is given) for
the closing of such purchase. The exercise price of the Options may be paid by
MADDON in cash, by the delivery of promissory note or by the delivery of Common
Stock of the Corporation. In the latter case the fair market value of the
Common Stock delivered, determined by reference to the last reported sales
price of the Common Stock on the NASDAQ National Market (or such other exchange
as may be the principal exchange on which the Corporation=s Common stock is
listed) on the last day prior to such exercise on which trading occurred, will
be applied to the exercise price.
5.5 Acceleration of Exercise Schedule. All Options shall vest
and become fully exercisable immediately upon any AChange in Control@. For
purposes of this Agreement, a AChange in Control@ shall mean:
(i) a change in the composition of the Board such that during
any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the
6
Corporation to effect a transaction described in clause (ii) or (iii) of
this paragraph) whose election by the Board or nomination for election by
the Corporation=s stockholders was approved by a vote of at least two-
thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at least a
majority of the members thereof;
(ii) the approval by the stockholders of the Corporation of a
merger, consolidation, reorganization or similar corporate transaction,
whether or not the Corporation is the surviving corporation in such
transaction, in which outstanding shares of Common Stock are converted
into (A) shares of stock of another company, other than a conversion into
shares of voting common stock of the successor corporation (or a holding
company thereof) representing more than 50% of the voting power of all
capital stock thereof outstanding immediately after the merger or
consolidation, or (B) other securities (of either the Corporation or
another company) or cash or other property; or
(iii) the approval by the stockholders of the Corporation of (A)
the sale or other disposition of all or substantially all of the assets of
the Corporation, or (B) a complete liquidation or dissolution of the
Corporation.
Except as may be required under Section 422A of the Code with respect
to ISOs, neither the Traditional Options nor the Valuation Based Options shall
be subject to any limitations under any stock option plan or otherwise on the
post-employment period during which such options may be exercised or to any
repurchase rights by the Corporation, except as provided in Section 8.2 hereof.
6. EMPLOYEE BENEFITS.
During the term of this Agreement, MADDON shall be eligible to
participate in all employee benefit plans and programs of the Corporation in
which other senior executives of the Corporation are eligible to participate
from time to time, including, without limitation, any qualified or non-
qualified pension, 401(k), profit sharing and savings plans, any welfare
benefit plans (including, without limitation, medical, dental and health plans
and disability and group life insurance coverages), subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and programs. MADDON shall be entitled to participate in such plans and
programs on terms no less favorable to MADDON than those on which senior
executives of the Corporation generally participate. Without limiting the
7
generality of the foregoing, the Corporation shall provide MADDON with such
long-term disability and life insurance benefits as are made generally
available to senior executives of the Corporation.
During the term of this Agreement, MADDON shall be entitled to such
fringe benefits and perquisites as are made generally available to senior
executives of the Corporation from time to time. Notwithstanding the
foregoing, in each calendar year of the Term MADDON shall accrue four weeks=
paid vacation. In each calendar year commencing with the calendar year ending
December 31, 1999, MADDON may carry over and use up to two weeks of such
vacation during the next calendar year.
MADDON acknowledges and agrees that the Corporation does not
guarantee the adoption or continuance of any particular employee benefit plan
or program or other fringe benefit during the terms of this Agreement, and
participation by MADDON in any such plan or program shall be subject to the
rules and regulations applicable thereto.
7. REIMBURSEMENT OF EXPENSES.
The Corporation shall provide MADDON with reimbursement of all
reasonable travel (including private car service commuting expenses, or in the
alternative, car leasing expenses) and other business expenses and
disbursements incurred by MADDON in the performance of his duties under this
Agreement, upon proper accounting in accordance with the Corporation=s normal
practices and procedures for reimbursement of business expenses.
8. TERMINATION.
8.1 The Term and this Agreement, except those provisions specified
to survive termination, shall terminate before the expiration date set forth
above in Section 2 on the occurrence of the earlier of the following:
8.1.1 On the dissolution of the Corporation;
8.1.2 On the death or disability of MADDON. Disability shall
mean the failure by MADDON, because of illness or incapacity, to render for One
Hundred Twenty (120) days consecutively or One Hundred Eighty (180) days
8
cumulatively during any twelve (12) month period of the Term, services of the
character contemplated by this Agreement;
8.1.3 On the dismissal of MADDON for good cause shown, which
shall mean such cause as the courts of the State of New York (including federal
courts) have determined to be justifiable cause for termination of employment
including the continual failure by MADDON to perform substantially his duties
with the Corporation (other than any such failure resulting from incapacity due
to physical or mental illness) after a demand for substantial performance is
delivered to MADDON by the Board, conviction of a felony involving moral
turpitude, habitual drunkenness, excessive absenteeism not related to sick
leave or vacations (but only after notice from the Board followed by a
repetition of such excessive absenteeism), dishonesty directly and materially
injurious to the Corporation, or continuous conflict of interest after notice
in writing from the Board;
8.1.4 On the dismissal of MADDON without cause (that is, for
any reason the Corporation shall determine other than for good cause shown or
death or disability); and
8.1.5 On the resignation of MADDON.
8.2 Upon termination of the Term and this Agreement at the
expiration of the Term pursuant to Section 2, MADDON shall (i) be entitled to
receive any amounts from the Corporation then due but unpaid, prorated to the
date of termination, together with such annual bonus in respect of the period
from the end of the period in respect of which the last annual bonus was paid
to such date of termination, as the Board determines appropriate in its sole
discretion as contemplated by Section 4.3 (an AEnding Bonus@), and (ii) have
the right to exercise the Options granted pursuant to Section 5 hereof in
accordance with Section 5 hereof, except that if MADDON=s employment by the
Corporation shall cease for any reason upon the termination of the Term or
thereafter, except as set forth below any Options not vested at the date such
employment shall cease shall be forfeited. Upon the dismissal of MADDON for
9
good cause or on the resignation of MADDON other than for Good Reason (as
defined below), MADDON shall (i) be entitled to receive any amounts from the
Corporation then due but unpaid, prorated to the date of termination, (ii) have
the right to exercise any Valuation Based Options then vested in MADDON only
for a period of three months after the date of termination, (iii) have the
right to exercise any other Options then vested in MADDON in accordance with
Section 5 hereof, and (iv) any Options not vested at the date of termination
shall be forfeited. Upon the termination of the Term and this Agreement on the
death or disability of MADDON, MADDON's estate or MADDON, as the case may be,
shall (i) be entitled to receive any amounts from the Corporation then due but
unpaid, prorated to the date of termination, together with an Ending Bonus,
(ii) for a period of two years following such termination, continue to receive
the welfare benefits (or the cash equivalent thereof in the discretion of the
Corporation) described in Section 6 hereof, (iii) have the right to exercise
the Traditional Options vested in MADDON in accordance with Section 5, (iv)
have the right to exercise any Valuation Based Options vested or whose vesting
shall accelerate in accordance with Section 5 hereof within one year from the
date of termination (or the end of the acceleration period under Section 5, if
earlier) in accordance with Section 5 hereof and the balance of such Valuation
Based Options not so vested or vesting within such period shall be forfeited,
and (v) any Traditional Options not vested at the date of termination shall be
forfeited. Upon termination of the Term and this Agreement on the dismissal of
MADDON without cause during the Term hereof or on the resignation of MADDON for
Good Reason, MADDON shall (i) be entitled to receive any amounts from the
Corporation then due but unpaid, prorated to the date of termination together
with an Ending Bonus, (ii) for a period of two years following such termina-
tion, continue to receive the annual Salary, an annual bonus of $50,000 and the
welfare benefits (or the cash equivalent thereof in the discretion of the
Corporation) described in Section 6 hereof, (iii) be vested with all of the
Traditional Options under Section 5 hereof, (iv) have the right to exercise any
10
Traditional Options in accordance with Section 5, and (v) have the right to
exercise any Valuation Based Options vested or whose vesting shall accelerate
in accordance with Section 5 hereof within two years and six months from the
date of termination (or the end of the acceleration period under Section 5, if
earlier) in accordance with Section 5 hereof and the balance of such Valuation
Based Options not so vested or vesting within such period shall be forfeited.
8.3 For the purposes of this Agreement, AGood Reason@ shall exist if
there shall occur (a) a material diminution during the Term in MADDON=s
position, title, responsibilities, authority or reporting relationship from
that provided for in this Agreement (including his failure to be a director of
the Corporation other than by reason of his resignation) or (b) a material
breach by the Corporation of its obligations under this Agreement, that
continues after notice in writing to the Corporation specifying such breach for
60 days or such longer period (not to exceed 60 additional days) as is required
for the Corporation to effect a cure or remedy of the situation.
9. COVENANT NOT TO COMPETE AND NON-DISCLOSURE OF
CONFIDENTIAL INFORMATION.
9.1 During or after the term of this Agreement and/or MADDON's
employment by the Corporation, MADDON shall not without the Corporation's prior
written consent use or disclose any "Proprietary Information" (as defined in
Section 10.1) or any other confidential information relating to the Corporation
(including, but not limited to, data on which patents have been applied for or
issued or other proprietary intellectual property, customer lists, financial
information, sales and marketing data), or its business, obtained during the
course of his employment.
9.2 MADDON shall not during the Term hereof and for a period of Two
(2) years after the expiration or earlier termination of the Term, directly or
indirectly, own, manage, operate, or control, any business in competition with
or similar to the type of business conducted by the Corporation, and will not
render services, directly or indirectly, to any "Conflicting Organization" (as
11
hereinafter defined). The foregoing shall not apply to the ownership by MADDON
of less than One percent (1%) of the securities of a publicly traded
organization. "Conflicting Organization" means any person or organization
engaged in or about to become engaged in servicing, production, marketing or
selling of, a "Conflicting Product" (as hereinafter defined); provided,
however, the foregoing shall not prohibit MADDON from working for a division or
other business unit of an organization involved with a Conflicting Product
provided such division or business unit is not itself involved with a
Conflicting Product. "Conflicting Product" means any product, process, or
service, in existence or under development, of any person or organization other
than the Corporation which resembles or competes with a product, process, or
service of the Corporation, in existence or under development. In the event
that the Corporation terminates MADDON's employment under this Agreement
without cause during the Term hereof or if MADDON terminates his employment for
Good Reason, MADDON's obligation under the foregoing with respect to non-
competition with the Corporation for a period of Two (2) years after such
termination shall no longer be applicable.
9.3 During and for a period of three years after the Term of this
Agreement and/or MADDON's employment by the Corporation, MADDON shall not
solicit or induce any employees of the Corporation to leave the Corporation to
work for any entity or person engaged in the same business as the Corporation,
either directly or indirectly.
10. PROPRIETARY INFORMATION.
10.1 MADDON understands that the Corporation possesses and will
continue to possess "Proprietary Information" (as defined below) and/or
"Inventions" (as defined below) that have been created, discovered, or
developed, or have otherwise become known to the Corporation.
10.1.1 For purposes of this Agreement, particularly for this
Section 10, "Proprietary Information" shall include, but not be limited to,
trade secrets, processes, formulae, data and know-how, improvements,
12
"Inventions" (as defined below), techniques, marketing plans, strategies,
forecasts and customer lists, including without limitation, information
created, discovered, developed or made known by MADDON and within the scope of
this Agreement or to MADDON during the period of or arising out of his
retention by the Corporation, and/or in which property rights have been
assigned or otherwise conveyed to the Corporation, which information has
commercial value in the business in which the Corporation is engaged.
10.1.2 For purposes of this Agreement, particularly for this
Section 10, "Inventions" shall mean any improvements, inventions, formulae,
processes, techniques, know-how and data, whether or not patentable, made or
conceived or reduced to practice or learned by MADDON, either alone or jointly
with others, during the period of his employment (whether or not during normal
working hours), together with all patent applications, patents, copyrights and
reissues thereof that may at any time be granted for or upon any such
improvements, inventions, formulae, processes, techniques, know-how or data,
and/or during the twelve (12) months immediately following termination of his
employment which:
(a) are within the scope of the duties to be performed by
MADDON under this Agreement and are related to or useful in the business of the
Corporation, or
(b) result from tasks assigned MADDON by the Corporation,
or
(c) are funded by the Corporation, or
(d) result from use of premises owned, leased or
contracted for by the Corporation.
10.2 In consideration of his employment by the Corporation and the
compensation received by MADDON from the Corporation, MADDON agrees as follows:
10.2.1 All Proprietary Information including, but not limited
to, all "Inventions" as defined above, shall be the sole property of the
13
Corporation and its assigns and MADDON assigns to the Corporation any rights he
may have or acquire in all Proprietary Information.
10.2.2 All documents, data, records, apparatus, equipment, and
other physical property, whether or not pertaining to Proprietary Information,
furnished to MADDON by the Corporation or produced by MADDON or others in
connection with his employment, shall be and remain the sole property of the
Corporation and shall be returned promptly to the Corporation as and when
requested by the Corporation. Should the Corporation not so request, MADDON
shall return and deliver all such property upon termination of his employment
with the Corporation for any reason and MADDON will not take with him any such
property or any reproduction of such property upon such termination but this
shall not apply to MADDON's personal diaries and papers provided same do not
contain information relating to Proprietary Information or Inventions.
10.2.3 MADDON will promptly disclose all Inventions to the
Corporation, or any persons designated by it. Such disclosures shall continue
for One (1) year after termination of this Agreement with respect to anything
that would be an Invention if made, conceived, reduced to practice or learned
during the Term.
10.2.4 The Inventions shall become and remain the property of
the Corporation, whether or not patent applications are filed thereon. Upon
request and at the expense of the Corporation, MADDON shall make application
through the patent attorneys or agents of the Corporation for letters patent of
the United States and any and all other countries at the discretion of the
Corporation on the Inventions and to assign all such applications to the
Corporation or its order immediately, all without additional payment, during
MADDON's period of employment by the Corporation and for one year after the
termination of employment. MADDON shall give the Corporation, its attorneys
and agents all reasonable assistance in preparing and prosecuting such
applications and, on request of the Corporation, MADDON shall execute all
papers and do all things that may be reasonably necessary to protect the rights
14
of the Corporation and vest in it or its assigns the inventions, applications,
and letters patent herein contemplated.
11. RETURN OF DOCUMENTS.
On the expiration or earlier termination of the Term or MADDON's
resignation, discharge or earlier departure from the Corporation, MADDON shall
promptly surrender to the Corporation all of the Corporation's books, records,
documents and customer lists and/or other of the Corporation's materials or
records he may have in his possession, including but not limited to the
materials described in Section 10.2.2.
12. REMEDIES.
12.1 MADDON agrees that his services are of a special, unique and
extraordinary character, that it would be extremely difficult to replace such
services, and that, in the event of a breach or threatened breach of any of the
provisions of this Agreement, the Corporation will not have an adequate remedy
at law. Accordingly, the Corporation shall be entitled to enforce such
provisions by means of injunctive relief as may be available to restrain MADDON
and any business, firm, partnership, individual, corporation or entity
participating in such breach or threatened breach from the violation of the
provisions hereof, without thereby waiving any other legal or equitable
remedies available to the Corporation. Likewise, MADDON shall be entitled to
enforce the provisions of this Agreement by means of injunctive relief as may
be available to restrain the Corporation from the violation or threatened
violation of the provisions hereof, without thereby waiving any other legal or
equitable remedies available to him.
12.2 If any of the covenants contained in this Agreement or any part
thereof is held to be unenforceable because of the duration thereof or the area
or scope covered thereby, the parties hereby agree that the court making such
determination shall have the power to reduce the duration, area and/or scope of
such covenant so that in its reduced form, the covenant shall be enforceable.
15
13. TRANSFER AND ASSIGNMENT.
This Agreement will extend to and be binding on MADDON, his legal
representatives, heirs, and distributees, and on the Corporation, its
successors and assigns, and the term "Corporation" as used in this Agreement
will include such successors and assigns.
14. MODIFICATIONS.
This instrument contains the entire agreement of the parties and the
parties have made no other agreements, representations or warranties relating
to the subject matter of this Agreement. No modification of this Agreement
will be valid unless made in writing and signed by the parties.
15. NOTICES.
Any notices required or permitted to be given under this Agreement
must be in writing, by certified mail, return receipt requested to the parties,
at the addresses given herein.
16. ADVERSE PUBLIC STATEMENTS AND DISCLOSURES.
The parties hereto agree that at no time during or subsequent to the
term of this Agreement will either party directly or indirectly make or
facilitate the making of any adverse public statements or disclosures with
respect to the other (including, with respect to the Corporation, regarding its
business or securities or its Board, management or other personnel).
17. WAIVER AND BREACH.
The waiver or breach of any term or condition of this Agreement will
not be deemed to constitute the waiver of any other breach of the same or any
other term or condition.
18. GOVERNING LAW AND JURY TRIAL WAIVER.
This Agreement will be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within that State. In any litigation based on any claim
hereunder, the parties hereto agree to waive trial by jury.
19. EMPLOYMENT AGREEMENT DATED AS OF DECEMBER 15, 1993 SUPERSEDED.
16
Effective as of December 22, 1998, this Agreement supersedes the
Employment Agreement between MADDON and the Corporation dated as of December
15, 1993 (the A1993 Agreement@), except those provisions that specifically
survive the termination thereof.
PROGENICS PHARMACEUTICALS, INC.
By:____________________________
_______________________________
PAUL J. MADDON
17
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Progenics Pharmaceuticals, Inc. (the "Company") on Form S-8 (File Nos.
333-52277 and 333-56571) of our report dated February 16, 1999, on our audits
of the financial statements of the Company as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, which
report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 29, 1999