Form 10-Q PROGENICS PHARMACEUTICAL For: Jun 30

August 9, 2019 4:05 PM
 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


 

FORM 10-Q 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File No. 000-23143


 

PROGENICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware

13-3379479

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

One World Trade Center, 47th Floor
New York, NY 10007
(Address of principal executive offices, including zip code)

 

Registrants telephone number, including area code: (646) 975-2500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0013

PGNX

The Nasdaq Global Select Market

 

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 ☒No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ☐

 

Accelerated filer   ☒

Non-accelerated filer    ☐

 

Smaller reporting company ☒

   

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No ☒

 

As of August 5, 2019, a total of 86,421,634 shares of common stock, par value $0.0013 per share, were outstanding.

 

 

 

PROGENICS PHARMACEUTICALS, INC.

 

INDEX

 

 

 

Page No.

Part I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4.

Controls and Procedures

35

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

36

Item 6.

Exhibits

37

 

Signatures

38

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

ASSETS

 

(unaudited)

   

(audited)

 

Current assets:

               

Cash and cash equivalents

  $ 84,823     $ 137,686  

Accounts receivable, net

    10,569       3,803  

Other current assets

    4,806       2,640  

Total current assets

    100,198       144,129  
                 

Property and equipment, net

    7,008       3,944  

Intangible assets, net

    7,375       6,666  

Goodwill

    17,847       13,074  

Operating right-of-use lease assets

    13,889       -  

Other assets

    6,464       1,684  

Total assets

  $ 152,781     $ 169,497  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 272     $ 444  

Accrued expenses

    16,938       10,533  

Contingent consideration liability

    -       7,050  

Current portion of debt, net

    5,806       5,419  

Operating lease liabilities

    555       -  

Total current liabilities

    23,571       23,446  
                 

Long-term debt, net

    36,342       39,180  

Operating lease liabilities

    15,312       -  

Contingent consideration liability

    4,800       3,950  

Deferred tax liability

    28       28  

Other liabilities

    -       1,818  

Total liabilities

    80,053       68,422  
                 

Commitments and Contingencies

               

Stockholders’ equity:

               

Preferred stock, $0.001 par value Authorized - 20,000 shares; issued and outstanding - none

    -       -  

Common stock, $0.0013 par value Authorized - 160,000 shares; issued - 86,599 shares in 2019 and 84,742 shares in 2018

    112       110  

Additional paid-in capital

    724,027       713,019  

Treasury stock at cost, 200 shares of common stock

    (2,741 )     (2,741 )

Subscription receivable

    (933 )     -  

Accumulated other comprehensive loss

    (94 )     (105 )

Accumulated deficit

    (647,643 )     (609,208 )

Total stockholders’ equity

    72,728       101,075  

Total liabilities and stockholders’ equity

  $ 152,781     $ 169,497  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Revenues:

                               

Product sales

  $ 270     $ -     $ 270     $ -  

Royalty income

    3,593       3,530       7,754       6,588  

License and other revenue

    6,103       348       6,223       479  

Total revenue

    9,966       3,878       14,247       7,067  
                                 

Operating expenses:

                               

Cost of goods sold

    493       -       493       -  

Research and development

    13,080       9,347       25,472       17,457  

Selling, general and administrative

    14,570       7,569       23,794       14,266  

Change in contingent consideration liability

    916       1,300       1,816       2,100  

Total operating expenses

    29,059       18,216       51,575       33,823  
                                 

Operating loss

    (19,093 )     (14,338 )     (37,328 )     (26,756 )
                                 

Other (expense) income:

                               

Interest (expense) income and other income, net

    (607 )     (930 )     (1,107 )     (1,936 )

Total other (expense) income

    (607 )     (930 )     (1,107 )     (1,936 )
                                 

Loss before income tax benefit

    (19,700 )     (15,268 )     (38,435 )     (28,692 )
                                 

Income tax benefit

    -       96       -       96  
                                 

Net loss

  $ (19,700 )   $ (15,172 )   $ (38,435 )   $ (28,596 )

Net loss per share - basic and diluted

  $ (0.23 )   $ (0.20 )   $ (0.45 )   $ (0.39 )

Weighted-average shares - basic and diluted

    85,000       74,017       84,772       73,271  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net loss

  $ (19,700 )   $ (15,172 )   $ (38,435 )   $ (28,596 )

Other comprehensive loss:

                               

Foreign currency translation adjustments

    53       (38 )     11       (56 )

Comprehensive loss

  $ (19,647 )   $ (15,210 )   $ (38,424 )   $ (28,652 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY 

(In thousands)

(Unaudited)

 

   

Common Stock

    Common Stock Subscribed    

Additional

           

 

Accumulated 

Other

           

Treasury Stock

   

Total

 
   

Number

           

Number

           

Paid-in

   

Accumulated

   

Comprehensive

   

Subscription

   

Number

           

Stockholders’

 
   

of Shares

   

Par Value

   

of Shares

   

Par Value

   

Capital

   

Deficit

   

Loss

   

Receivable

   

of Shares

   

Cost

   

Equity

 

Balance at December 31, 2018

    84,742     $ 110       -     $ -     $ 713,019     $ (609,208 )   $ (105 )   $ -       (200 )   $ (2,741 )   $ 101,075  

Net loss

    -       -       -       -       -       (18,735 )     -       -       -       -       (18,735 )

Foreign currency translation adjustments

    -       -       -       -       -       -       (42 )     -       -       -       (42 )

Stock-based compensation expense

    -       -       -       -       1,077       -       -       -       -       -       1,077  

Balance at March 31, 2019

    84,742     $ 110       -     $ -     $ 714,096     $ (627,943 )   $ (147 )   $ -       (200 )   $ (2,741 )   $ 83,375  

Net loss

    -       -       -       -       -       (19,700 )     -       -       -       -       (19,700 )

Foreign currency translation adjustments

    -       -       -       -       -       -       53       -       -       -       53  

Stock-based compensation expense

    -       -       -       -       994       -       -       -       -       -       994  

Issuance of common stock to former shareholders of MIP, net of payments to advisors

    1,632       2       -       -       7,737       -       -       -       -       -       7,739  

Exercise of stock options

    50       -       -       -       267       -       -       -       -       -       267  

Subscription receivable in connection with exercise of stock options

    -       -       175       -       933       -       -       (933 )     -       -       -  

Balance at June 30, 2019

    86,424     $ 112       175     $ -     $ 724,027     $ (647,643 )   $ (94 )   $ (933 )     (200 )   $ (2,741 )   $ 72,728  

 

   

Common Stock

    Common Stock Subscribed    

Additional

           

 

Accumulated 

Other

           

Treasury Stock

   

Total

 
   

Number

           

Number

           

Paid-in

   

Accumulated

   

Comprehensive

   

Subscription

   

Number

           

Stockholders’

 
   

of Shares

   

Par Value

   

of Shares

   

Par Value

   

Capital

   

Deficit

   

Loss

   

Receivable

   

of Shares

   

Cost

   

Equity

 

Balance at December 31, 2017

    71,325     $ 93       320     $ -     $ 609,829     $ (541,586 )   $ (33 )   $ (2,109 )     (200 )   $ (2,741 )   $ 63,453  

Net loss

    -       -       -       -       -       (13,424 )     -       -       -       -       (13,424 )

Foreign currency translation adjustments

    -       -       -       -       -       -       (18 )     -       -       -       (18 )

Stock-based compensation expense

    -       -       -       -       1,048       -       -       -       -       -       1,048  

Cumulative effect of ASU 2014-09 adoption

    -       -       -       -       -       35       -       -       -       -       35  

Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs

    1,537       2       (320 )     -       7,414       -       -       2,109       -       -       9,525  

Subscription of common stock in connection with at-the-market offering, net of commissions

    -       -       103       -       750       -       -       (750 )     -       -       -  

Balance at March 31, 2018

    72,862     $ 95       103     $ -     $ 619,041     $ (554,975 )   $ (51 )   $ (750 )     (200 )   $ (2,741 )   $ 60,619  

Net loss

    -       -       -       -       -       (15,172 )     -       -       -       -       (15,172 )

Foreign currency translation adjustments

    -       -       -       -       -       -       (38 )     -       -       -       (38 )

Stock-based compensation expense

    -       -       -       -       2,130       -       -       -       -       -       2,130  

Cumulative effect of ASU 2014-09 adoption

    -       -       -       -       -       -       -       -       -       -       -  

Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs

    2,097       2       -       -       15,288       -       -       -       -       -       15,290  

Subscription of common stock in connection with at-the-market offering, net of commissions

    -       -       (103 )     -       (750 )     -       -       750       -       -       -  

Balance at June 30, 2018

    74,959     $ 97       -     $ -     $ 635,709     $ (570,147 )   $ (89 )   $ -       (200 )   $ (2,741 )   $ 62,829  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

PROGENICS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

 

   

Six Months Ended

 
   

June 30,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net loss

  $ (38,435 )   $ (28,596 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Stock-based compensation expense

    2,071       3,178  

Depreciation and amortization

    1,166       590  

Non-cash interest expense

    139       137  

Other

    11       (96 )

Change in fair value of contingent consideration liability

    1,816       2,100  

Changes in assets and liabilities:

               

Accounts receivable

    (6,764 )     164  

Other current assets

    (2,073 )     63  

Other assets

    (2,705 )     -  

Accounts payable

    (169 )     (2,797 )

Accrued expenses

    6,446       (77 )

Other current liabilities

    39       -  

Other liabilities

    (242 )     145  

Net cash used in operating activities

    (38,700 )     (25,189 )

Cash flows from investing activities:

               

Acquisition of AZEDRA manufacturing assets

    (8,000 )     -  

Purchases of property and equipment

    (1,827 )     (502 )

Portion of MIP milestones paid to former advisor

    (277 )     -  

Net cash used in investing activities

    (10,104 )     (502 )

Cash flows from financing activities:

               

Net proceeds from issuance of common stock in connection with at-the-market offering

    -       24,815  

Repayment of debt

    (2,590 )     (2,179 )

Proceeds from exercise of stock options

    267       -  

Net cash (used in) provided by financing activities

    (2,323 )     22,636  

Effect of currency rate changes on cash, cash equivalents and restricted cash

    2       (93 )

Net decrease in cash, cash equivalents, and restricted cash

    (51,125 )     (3,148 )

Cash, cash equivalents, and restricted cash at beginning of period

    139,220       92,164  

Cash, cash equivalents, and restricted cash at end of period

  $ 88,095     $ 89,016  
                 

Supplemental disclosure of cash flow information

               

Cash paid for interest

  $ 2,131     $ 2,381  
                 

Non-cash financing activity

               

Subscription receivable

  $ 933     $ -  

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown above for the six months ended June 30, 2019 and 2018:

 

Cash, cash equivalents and restricted cash information

               

Cash and cash equivalents at beginning of period

    137,686       90,642  

Restricted cash included in long-term assets at the beginning of period

    1,534       1,522  

Cash, cash equivalents and restricted cash at beginning of period

  $ 139,220     $ 92,164  
                 

Cash and cash equivalents at end of period

    84,823       87,490  

Restricted cash included in long-term assets at the end of period

    3,272       1,526  

Cash, cash equivalents, and restricted cash at end of period

  $ 88,095     $ 89,016  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

Note 1. Summary of Significant Accounting Policies

 

Business

 

Progenics Pharmaceuticals, Inc. (and its subsidiaries collectively the “Company,” “Progenics”, “we”, or “us”) is an oncology company focused on the development and commercialization of innovative targeted medicines and artificial intelligence to find, fight and follow cancer. Highlights of our recent progress include the first commercial revenue for AZEDRA®, completion of enrollment of the PyLTM pivotal Phase 3 trial, and dosing of the first patient in the 1095 open label Phase 2 trial. Our pipeline includes therapeutic agents designed to precisely target cancer (AZEDRA, 1095 and PSMA TTC), as well as prostate-specific membrane antigen (“PSMA”) targeted imaging agents for prostate cancer (PyL and 1404).

 

Recent and Continued Progress:

 

 

AZEDRA Launch – A team of Nuclear Medicine Technologists, Sales Representatives, Medical Science Liaisons and Access Specialists are in the field assisting centers of excellence and payers with utilizing and reimbursing AZEDRA. This quarter we completed the first administrations of commercial AZEDRA and recorded our first commercial sales.

  Centers for Medicare & Medicaid Services ("CMS") approved a new technology add-on payment ("NTAP") for AZEDRA when administered in the hospital inpatient setting for Medicare beneficiaries in FY 2020. The NTAP will cover the lesser of 65 percent of the average cost of AZEDRA, or 65 percent of the costs in excess of the Medicare Severity Diagnosis Related Groups ("MS–DRG") payment for the case. As a result, the maximum NTAP for a case involving a therapeutic dose of AZEDRA is $98,150.
 

Patient enrollment for the Phase 3 CONDOR trial evaluating the diagnostic performance and clinical impact of PyL (18F-DCFPyL) was completed five months ahead of schedule. The Phase 3 CONDOR trial is a multi-center, open label trial that dosed 208 patients with biochemical recurrence of prostate cancer at 14 sites in the U.S. and Canada. Top-line data is expected by year end.

 

The first patient was dosed in the ongoing Phase 2 trial of 1095 in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC). Progenics’1095 is a small molecule radiotherapeutic designed to selectively bind to the extracellular domain of prostate specific membrane antigen (“PSMA”), a protein that is highly expressed on prostate cancer cells.

 

We reached alignment with the U.S. Food and Drug Administration (“FDA”) on a clinical development plan to support an expanded label for AZEDRA for the treatment of patients with unresectable or metastatic neuroendocrine tumors (“NETs”) who are MIBG-avid. Progenics plans to conduct a basket study that will evaluate AZEDRA in patients with NETs that are MIBG-avid, including gastroenteropancreatic neuroendocrine tumors as well as other NETs and utilize a dosing regimen that enables outpatient administration. The basket study is expected to begin by the end of the year and enroll approximately 150 patients at sites in the U.S. and Canada.

 

The U.S. District Court of New Jersey upheld the validity and determined the infringement by Actavis Laboratories FL, Inc. (“Actavis”) of a patent protecting RELISTOR Tablets, which expires in March 2031. Defendant, Actavis, a subsidiary of Teva Pharmaceutical Industries Ltd., had challenged the validity of and had alleged non-infringement of Claims 2 and 5 of U.S. Patent No. 8,524,276, which protects the formulation of RELISTOR Tablets.

 

We entered into an exclusive license agreement with ROTOP Pharmaka GmbH (“ROTOP”), a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, to develop and commercialize 1404 in Europe. 1404 is a technetium-99m labeled small molecule which binds to PSMA and is used as an imaging agent to diagnose and detect localized prostate cancer as well as soft tissue and bone metastases. Under the terms of the collaboration, ROTOP will be responsible for the development, regulatory approvals and commercialization of 1404 in Europe while Progenics is entitled to double-digit, tiered royalties on net sales in the territory.

  The automated Bone Scan Index (“aBSI”) automatically segments the anatomical regions of the skeleton and detects and classifies lesions in the bone scans of prostate cancer patients. The aBSI has been shown to be an objective measure of the quantitative change in disease burden and is a prognostic biomarker in patients with metastatic prostate cancer. In August 2019, the Company received 510(k) clearance from the FDA to market its cloud-based version of aBSI product in the U.S. This clearance of our cloud-based software as a medical device is an essential step towards the further development of PSMA AI.
 

We entered into a transfer agreement with FUJIFILM Toyama Chemical Co, Ltd. (“FUJIFILM”) for the rights to the Company’s aBSI product in Japan for use under the name BONENAVI®. Under the terms of the agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from Progenics for use in Japan. In exchange, Progenics received $4.0 million in an upfront payment and will receive service fees for aBSI and other AI products over three years in Japan. BONENAVI has been licensed to FUJIFILM for use in Japan since 2011.

 

We initiated a collaboration that provides the VA Greater Los Angeles Healthcare System (“VAGLAHS”) with access to the Company’s AI platform for investigational use. In the project, the VAGLAHS network will gain access to Progenics’ machine learning platforms, which includes the aBSI and the PSMA AI platforms. The collaboration will explore novel predictive machine learning algorithms from the digital medical images and its associated clinical outcomes. These novel algorithms will be prospectively validated at VAGLAHS for effective healthcare management of veterans with prostate cancer. This project is the nation’s first collaborative effort to validate cutting-edge machine learning tools for improving treatment management of veterans with prostate cancer and provides additional validation to Progenics’ AI platform.

 

 

Corporate:

 

 

Progenics appointed Huw Jones to the newly created role of Vice President, Commercial. Mr. Jones joins Progenics following several years on the commercial strategy and operations team at Novartis Pharmaceuticals, as well as its subsidiaries, Advanced Accelerator Applications SA and Novartis Oncology. In his two decades at Novartis and its subsidiaries, Mr. Jones held various global leadership roles, including Executive Director and Global Brand Leader, Head of Global Commercial Excellence, as well as positions of increasing responsibility in general management, sales, marketing, training and commercial operations.

 

Strategic partnerships:

 

 

RELISTOR® (methylnaltrexone bromide) is licensed to Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch Health Companies Inc. (“Bausch”, which is the predecessor of Valeant Pharmaceuticals International, Inc.). RELISTOR subcutaneous injection and RELISTOR Tablets are approved by the FDA for the treatment of opioid-induced constipation in adults with chronic non-cancer pain.

 

Bayer AG (“Bayer”) has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, in combination with Bayer’s alpha-emitting radionuclides. Bayer is developing PSMA TTC, a thorium-227 labeled PSMA-targeted antibody therapeutic. Bayer initiated a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer. In May 2019, Bayer dosed the first patient in the Phase 1 trial which triggered a $2.0 million milestone payment, recorded as part of the license and other revenue.

 

CytoDyn Inc. (“CytoDyn”) acquired leronlimab (PRO 140), which acquisition included a milestone and royalty payment obligations to us. Leronlimab is a fully humanized monoclonal antibody which is a cellular targeting CCR5 entry antagonist and is currently in development for the treatment of HIV. CytoDyn announced in March 2019 that it filed its first of three sections of its Biologics License Application (“BLA”) to the FDA for leronlimab for the treatment of HIV under the Rolling Review process.

 

Curium has exclusive rights to develop, manufacture and commercialize PyL (18F-DCFPyL) in Europe. Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of PyL in Europe, and Progenics is entitled to royalties on net sales of PyL.

 

ROTOP has exclusive rights to develop, manufacture and commercialize 1404 in Europe. Under the terms of the collaboration, ROTOP is responsible for the development, regulatory approvals and commercialization of 1404 in Europe. We understand from ROTOP that it plans to hold an expert panel meeting with Key Opinion Leaders (“KOLs”) in the PSMA imaging field, as well as regulatory experts, to review existing data on 1404 and obtain guidance on the clinical development. Upon agreement on a path forward, ROTOP will request a meeting with European regulators and start a clinical trial in early 2020. Under this agreement, Progenics is entitled to double-digit, tiered royalties on future net sales of 1404 in Europe.

 

FUJIFILM has rights to the Company’s aBSI product in Japan for use under the name BONENAVI. Under the terms of the agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from us for use in Japan. In exchange, Progenics received a $4.0 million upfront payment and is entitled to service fees for the next three years.

 

Our current principal sources of revenue from operations are royalty and development and commercial milestones from Bausch and Bayer. Royalty and further milestone payments from Bausch or Bayer depend on success in development and commercialization of RELISTOR and our PSMA antibody technology, respectively, which is dependent on many factors, such as Bausch or Bayer’s respective efforts, decisions by the FDA and other regulatory bodies, competition from drugs for the same or similar indications, and the outcome of clinical and other testing of the licensed products.

 

We commenced principal operations in 1988, became publicly traded in 1997, and throughout have been engaged primarily in research and development efforts, establishing corporate collaborations, launching AZEDRA and other related business activities. Certain of our intellectual property rights are held by wholly-owned subsidiaries. Our U.S. operations are presently conducted at our headquarters in New York and our manufacturing facility in Somerset, New Jersey. The operations of our wholly-owned foreign subsidiary, EXINI Diagnostics A.B. (“EXINI”), are conducted at our facility in Lund, Sweden. We operate under a single operating segment, which includes development, manufacturing and commercialization of pharmaceutical products and other technologies to target, diagnose and treat cancer. Our operating segment is regularly evaluated for financial performance by our chief operating decision maker, who is our Chief Executive Officer.

 

 

Liquidity

 

At June 30, 2019, we had $84.8 million of cash and cash equivalents, a decrease of $52.9 million from $137.7 million at December 31, 2018. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year from the filing date of this Quarterly Report on Form 10-Q. We have historically funded our operations to a significant extent from capital-raising and we expect to require additional funding in the future, the availability of which is never guaranteed and may be uncertain. We expect that we may continue to incur operating losses.

 

Basis of Presentation

 

Our unaudited condensed consolidated financial statements have been prepared in accordance with applicable presentation requirements, and accordingly, do not include all information and disclosures necessary for a presentation of our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, these financial statements reflect all adjustments, consisting primarily of normal recurring accruals necessary for a fair statement of results for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year.

 

Our unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2018. The year-end consolidated balance sheet data in these financial statements were derived from audited financial statements but do not include all disclosures required by GAAP.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Progenics as well as its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

 

Revenue Recognition

 

We recognize revenue when our customers obtain control of the promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To account for our revenue arrangements, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligations.

 

For contracts determined to be within the scope of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or the “Topic 606”), we assess the goods or services promised within each contract for the purpose of identifying them as performance obligations. We must apply judgement in assessing whether each promised good or service is distinct. If a promised good or service is not distinct, we will combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

 

The transaction price is then determined and allocated to the identified performance obligations in proportion to their estimated fair value, which requires significant judgment. Variable consideration, which is estimated using the expected value method or the most likely amount method, is included in the transaction price only if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

 

 

For arrangements that include development, regulatory or sales milestone payments, we evaluate whether the milestones are probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

 

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The following table summarizes our revenue streams from contracts with customers for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

   

Three months ended June 30,

   

Six months ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Product sales

  $ 270     $ -     $ 270     $ -  

Royalty income

    3,593       3,530       7,754       6,588  

License and other revenue

    6,103       348       6,223       479  

Total revenue

  $ 9,966     $ 3,878     $ 14,247     $ 7,067  

 

Product sales – represent revenue from sales of AZEDRA directly to hospitals. Our performance obligations are to provide AZEDRA based on sales orders from hospitals, which have been verified by our commercial team as properly credentialed to receive, handle, administer and dispose of radioactive materials. We recognize revenue after the customer takes title and has obtained control of the product. Our contracts with hospitals stipulate that product is shipped free on board destination. We invoice hospitals after the products have been delivered and invoice payments are generally due within 60 days of invoice date. We record sales to hospitals based on AZEDRA’s list price per mCi and the amount prescribed based upon a dosimetric assessment of each patient. We record product sales net of any variable consideration due to rebates and discounts provided under governmental and other programs, and other sales-related deductions, such as product returns and copay assistance programs. Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.

 

Royalty income – represents revenue from the sales-based royalties under our intellectual property licensing arrangements and is recognized upon net sales of the licensed products.

 

License and other revenue – represents revenue from upfront payments (fixed consideration) and development and sales milestones, sublicense payments, support and service payments and sales-based bonus payments (variable consideration) under our licensing or software arrangements. The fixed consideration will be recognized as revenue at the time when the transfer of know-how is completed. The variable consideration will be estimated using the most likely amount method and recognized only when we have “a high degree of confidence” that revenue will not be reversed in a subsequent reporting period. The other revenue also includes revenue from product sales of research reagents, that is recognized upon shipment to the end customer (i.e. control of the product is deemed to be transferred).

 

We had receivable contract balances of $10.6 million and $3.8 million as of June 30, 2019 and December 31, 2018, respectively, primarily related to the royalty revenue and upfront and milestone payments under our partnerships, which are included in license and other revenue (see Note 5. Accounts Receivable).

 

Restricted Cash

 

Restricted cash included in long-term assets of $3.3 million and $1.5 million at June 30, 2019 and December 31, 2018, respectively, represents collateral for a letter of credit securing a lease obligation (for both periods), collateral for a letter of credit related to equipment purchases and a security deposit with the German District Court related to the PSMA-617 litigation (for the 2019 period). We believe the carrying value of this asset approximates fair value.

 

 

Foreign Currency Translation

 

Our international subsidiaries generally consider their respective local currency to be their functional currency. Assets and liabilities of these international subsidiaries are translated into U.S. dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the quarter and year-to-date period. Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive loss in our condensed consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of our condensed consolidated balance sheets. Realized gains and losses denominated in foreign currencies are recorded in operating expenses in our condensed consolidated statements of operations and were not material to our consolidated results of operations for the three and six months ended June 30, 2019 or 2018.

 

Leases

 

We determine whether an arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid by using the lease term and discount rate determined at lease commencement. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate to determine the present value of our lease payments. Our leases may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. We recognize the operating right-of-use (“ROU”) lease assets at amounts equal to the lease liability adjusted for prepaid or accrued rent, remaining balance of any lease incentives and unamortized initial direct costs.

 

The operating lease liabilities are reported in other current liabilities and other noncurrent liabilities and the related ROU lease assets are reported in other noncurrent assets on our condensed consolidated balance sheets. Lease expense for our operating leases is calculated on a straight-line basis over the lease term and is reported in research and development and selling, general and administrative expenses on our condensed consolidated statements of operations. We do not recognize a lease liability or ROU lease assets for leases whose lease terms, at commencement, are twelve months or less, or for leases which are below the established capitalization threshold.

 

Property and Equipment

 

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $3.1 million and $2.7 million as of June 30, 2019 and December 31, 2018, respectively. The following table summarizes our property and equipment (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Machinery and equipment

  $ 3,949     $ 2,992  

Leasehold improvements

    3,052       1,734  

Computer equipment

    632       721  

Furniture and fixtures

    909       878  

Construction in progress

    1,612       317  

Property and equipment, gross

    10,154       6,642  

Less - accumulated depreciation

    (3,146 )     (2,698 )

Property and equipment, net

  $ 7,008     $ 3,944  

 

 

Note 2. New Accounting Pronouncements 

 

Recently Adopted

 

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases (Topic 842). This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and liabilities on their balance sheet that arise from leases with terms longer than 12 months as well as provide disclosures with respect to certain qualitative and quantitative information related to their leasing arrangements.

 

The FASB has subsequently issued the following amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019, and which we collectively refer to as the new leasing standards:

 

 

ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired prior to adoption of Topic 842 and that were not previously accounted for as leases under the prior standard, ASC 840, Leases.

 

 

 

ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02.

 

ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component.

 

ASU No. 2018-20, Narrow-Scope Improvements for Lessors, which contains certain narrow scope improvements to the guidance issued in ASU 2016-02.

 

ASU No. 2019-01, Leases (Topic 842): Codification Improvements.

 

We adopted the new leasing standards on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019 and did not adjust comparative periods. We also elected the package of practical expedients permitted under this standard, which among other things, allowed us to carry forward the lease classification for our existing leases. In preparation for the adoption of this standard and to enable preparation of the required financial information, we implemented new internal controls and processes.

 

The adoption of this standard impacted our 2019 opening consolidated balance sheet as we recorded operating lease liabilities of $15.3 million and ROU lease assets of $13.5 million, which equals the lease liabilities net of deferred rent and lease incentives previously recorded on our balance sheet under the old guidance. The adoption of this standard did not have an impact on our consolidated statements of operations or cash flows.

 

Recently Issued 

 

In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”), Fair Value Measurement - Disclosure Framework (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are currently assessing the timing of adopting the updated provisions and the impact of the updated provisions on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and in April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amend the scope and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. This ASU addresses certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

 

Note 3. Net Loss Per Share

 

Our basic net loss per share amounts have been computed by dividing net loss by the weighted-average number of common shares outstanding during the period. For the three and six months ended June 30, 2019 and 2018, we reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive.

 

 

The calculations of net loss per share, basic and diluted, are as follows (amounts in thousands, except per share data):

 

           

Weighted-Average

         
           

Shares

         
   

Net Loss

   

Outstanding

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 

Three months ended June 30, 2019

                       

Basic and diluted

  $ (19,700 )     85,000     $ (0.23 )

Six months ended June 30, 2019

                       

Basic and diluted

  $ (38,435 )     84,772     $ (0.45 )
                         

Three months ended June 30, 2018

                       

Basic and diluted

  $ (15,172 )     74,017     $ (0.20 )

Six months ended June 30, 2018

                       

Basic and diluted

  $ (28,596 )     73,271     $ (0.39 )

 

The following table summarizes anti-dilutive common shares or common shares where performance conditions have not been met, that were excluded from the calculation of diluted net loss per share (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Stock options

    6,298       3,237       6,382       3,236  

Contingent consideration liability (1)

    778       2,351       778       2,351  

Total securities excluded

    7,076       5,588       7,160       5,587  

 


(1) Calculated as follows: (a) the contingent consideration liability balance divided by (b) the closing stock price of our common stock.

 

 

Note 4. Fair Value Measurements

 

To estimate the fair values of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:

 

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access

Level 2 – Valuations for which all significant inputs are observable, either directly or indirectly, other than Level 1 inputs

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement

 

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

 

We believe the carrying amounts of our cash equivalents, restricted cash, accounts receivable, other current assets, other assets, accounts payable and accrued expenses approximated their fair values as of June 30, 2019 and December 31, 2018.

 

We record the contingent consideration liability resulting from our acquisition of Molecular Insight Pharmaceuticals, Inc. (“MIP”) at fair value in accordance with Accounting Standards Codification (“ASC”) 820 (Topic 820, Fair Value Measurement).

 

 

The following tables summarize each major class of our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy (in thousands):

 

           

Fair Value Measurements at June 30, 2019

 
           

Quoted Prices

in Active

   

Significant Other

   

Significant

 
    Balance at    

Markets for

   

Observable

   

Unobservable

 
    June 30,    

Identical Assets

   

Inputs

   

Inputs

 
   

2019

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Assets:

                               

Money market funds

  $ 82,737     $ 82,737     $ -     $ -  

Total assets

  $ 82,737     $ 82,737     $ -     $ -  
                                 

Liabilities:

                               

Contingent consideration liability

  $ 4,800     $ -     $ -     $ 4,800  

Total liabilities

  $ 4,800     $ -     $ -     $ 4,800  

 

           

Fair Value Measurements at December 31, 2018

 
           

Quoted Prices

in Active

   

Significant Other

   

Significant

 
    Balance at    

Markets for

   

Observable

   

Unobservable

 
    December 31,    

Identical Assets

   

Inputs

   

Inputs

 
   

2018

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Assets:

                               

Money market funds

  $ 136,052     $ 136,052     $ -     $ -  

Total assets

  $ 136,052     $ 136,052     $ -     $ -  
                                 

Liabilities:

                               

Contingent consideration liability

  $ 11,000     $ -     $ -     $ 11,000  

Total liabilities

  $ 11,000     $ -     $ -     $ 11,000  

 

The contingent consideration liability of $4.8 million as of June 30, 2019 represents the estimated fair value of the future potential milestone payments to former MIP stockholders (shown in the tables below).

 

Milestone payments due upon first commercial sale and/or from proceeds received from license revenue (in thousands):

 

Program

 

Consideration

 

Form of Payment

1095

    5,000  

Cash or Progenics common stock

1404

    9,984  

Cash or Progenics common stock or cash in the case of license revenue

    $ 14,984    

 

Net sales milestone payments due upon first achievement of specified net sales target in any single calendar year across all MIP-related programs (in thousands):

 

   

Consideration

 

Form of Payment at Progenics' Option

$30 million

  $ 5,000  

Cash or Progenics common stock

$60 million

    5,000  

Cash or Progenics common stock

$100 million

    10,000  

Cash or Progenics common stock

$250 million

    20,000  

Cash or Progenics common stock

$500 million

    30,000  

Cash or Progenics common stock

    $ 70,000    

 

We consider this liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success.

 

Significant changes in any of the probabilities of success or the probabilities as to the periods in which milestones will be achieved would result in a significantly higher or lower fair value measurement. We record the contingent consideration liability at fair value with changes in estimated fair values recorded in change in contingent consideration liability in our condensed consolidated statements of operations.

 

 

The following table summarizes quantitative information and assumptions pertaining to the fair value measurement of the Level 3 inputs at June 30, 2019 and December 31, 2018 (in thousands). The decrease in the contingent consideration liability of $6.2 million during the six months ended June 30, 2019 was primarily due to an $8.0 million payment for the AZEDRA first commercial sale milestone, which was partially offset by an increase in the AZEDRA sales forecasts associated with the planned initiation of a basket study to expand the label for AZEDRA and a decrease in the discount period used to calculate the present value of the contingent consideration liability.

 

   

Fair Value at

                 
   

June 30,

                 
   

2019

 

Valuation Technique

 

Unobservable Input

 

Assumption

 

Contingent Consideration Liability:

                       

1095 commercialization

  $ 450  

Probability adjusted discounted

 

Probability of success

    18%    
         

cash flow model

 

Period of expected milestone achievement

 

 

2026    
             

Discount rate

    10%    

1404 commercialization

    250  

Probability adjusted discounted

 

Probability of success

    43%    
         

cash flow model

 

Period of expected milestone achievement

  2022 - 2035  
             

Discount rate

    10%    

Net sales targets

    4,100  

Monte-Carlo simulation

 

Probability of success

  18% - 90%  
             

Discount rate

    10%    

Total

  $ 4,800                  

 

   

Fair Value at

                 
   

December 31,

                 
   

2018

 

Valuation Technique

 

Unobservable Input

 

Assumption

 

Contingent Consideration Liability:

                       

AZEDRA commercialization

  $ 7,050  

Probability adjusted discounted

 

Probability of success

 

 

90%    
         

cash flow model

 

Period of expected milestone achievement

 

 

2019    
             

Discount rate

 

 

10%    

1095 commercialization

    450  

Probability adjusted discounted

 

Probability of success

 

 

18%    
         

cash flow model

 

Period of expected milestone achievement

 

 

2026    
             

Discount rate

 

 

10%    

Net sales targets

    3,500  

Monte-Carlo simulation

 

Probability of success

 

18%

- 90%  
             

Discount rate

 

 

10%    

Total

  $ 11,000                  

 

For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated (in thousands):

 

   

Liability - Contingent Consideration

 
   

Fair Value Measurements Using

 
   

Significant Unobservable Inputs

 
   

(Level 3)

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Balance at beginning of period

  $ 11,900     $ 17,600     $ 11,000     $ 16,800  

Fair value change included in net loss

    916       1,300       1,816       2,100  

Payments

    (8,016 )     -       (8,016 )     -  

Balance at end of period

  $ 4,800     $ 18,900     $ 4,800     $ 18,900  
                                 

Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period

  $ 916     $ 1,300     $ 1,816     $ 2,100  

 

 

 

Note 5. Accounts Receivable

 

Our accounts receivable represent amounts due to us from royalties, collaborators, product sales and, to a small extent, sales of research reagents, and consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Royalties

  $ 3,593     $ 3,151  

Bayer milestone

    2,000       -  

FUJIFILM transfer

    4,000       -  

Other

    976       652  

Accounts receivable, net

  $ 10,569     $ 3,803  

 

 

Note 6. Recent Acquisition, Goodwill, In-Process Research and Development and Other Intangible Assets

 

Recent Acquisition

 

In February 2019, we acquired the AZEDRA manufacturing assets for $8.0 million cash consideration and entered into a sublease agreement for the radiopharmaceutical manufacturing facility located in Somerset, New Jersey. The Somerset site serves as the launch facility for AZEDRA and will also provide manufacturing support for the Company’s development stage radiopharmaceuticals, including 1095. The production of AZEDRA uses a proprietary Ultratrace® process which concentrates the MIBG targeted radiolytic activity by eliminating non-therapeutic “cold” MIBG molecules, giving AZEDRA a uniquely high specific activity.

 

Purchase Price Allocation: We accounted for this acquisition as a business combination by allocating the consideration we paid to the fair values of the assets acquired at the effective date of the acquisition, as summarized below. The difference between the fair value of the acquisition consideration and the estimated fair value of the identifiable assets represents potential future economic benefits arising from the acquisition, and has been recorded as goodwill.

 

The following table summarizes the allocation of the consideration paid to the estimated fair values of the assets acquired as of the acquisition date (in thousands):

 

   

Amount

 

Cash consideration

  $ 8,000  
         

Tangible assets acquired:

       

Machinery and equipment

    682  

Leasehold improvements

    1,300  

Total tangible assets acquired

    1,982  

Intangible assets - Somerset

    1,245  

Total tangible and intangible assets acquired

    3,227  
         

Goodwill

  $ 4,773  

 

The replacement cost method, a variation of the cost approach, was applied to assess the value of the assets acquired by Progenics. The principle behind this method is that the value represents the current cost of a similar new asset having the nearest equivalent utility as the asset being valued. It generally represents the maximum amount that a prudent investor will pay for a comparable asset. The cost approach provides a systematic framework for estimating the value of tangible or intangible assets based on the economic principle of substitution, and that no prudent investor will purchase an existing asset for more than it will cost to create a comparable asset. Under this approach, value is estimated by developing the cost to either replace or reproduce (replicate) the asset of similar utility.

 

The acquired Somerset intangible assets represent manufacturing know-how, which is comprised of documented technical data and information, formulae, standards, specifications, processes, methods, code books, as well as all information, knowledge, trade practices and secrets utilized by the Somerset facility in manufacturing of the AZEDRA. We estimate the remaining useful life of the Somerset intangible to be approximately six years.

 

 

Goodwill, In-Process Research and Development and Other Intangible Assets

 

The fair values of in-process research and development (“IPR&D”) and other identified intangible assets acquired in business combinations are capitalized. We utilize the “income method,” which applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected sales revenues and estimated costs or “replacement costs”, whichever is greater. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each IPR&D project and other identified intangible assets, independently. IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. Other identified intangible assets, which include the technology asset acquired as part of the EXINI business combination, AZEDRA product rights intangible and Somerset intangible, are amortized over the relevant estimated useful lives. The IPR&D assets are tested for impairment at least annually or when a triggering event occurs that could indicate a potential impairment and any impairment loss is recognized in our condensed consolidated statements of operations.

 

Goodwill represents excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We determine whether goodwill may be impaired by comparing the fair value of the reporting unit (we have determined that we have only one reporting unit for this purpose), calculated as the product of shares outstanding and the share price as of the end of a period, to its carrying value (for this purpose, our total stockholders’ equity). No goodwill impairment has been recognized as of June 30, 2019 or 2018.

 

The following tables summarize the activity related to our goodwill and intangible assets (in thousands):

 

                   

Other

 
                   

Intangible

 
   

Goodwill

   

IPR&D

   

Assets

 

Balance at January 1, 2019

  $ 13,074     $ 600     $ 6,066  

Increase related to Somerset acquisition

    4,773       -       1,245  

Amortization expense

    -       -       (536 )

Balance at June 30, 2019

  $ 17,847     $ 600     $ 6,775  

 

                   

Other

 
                   

Intangible

 
   

Goodwill

   

IPR&D

   

Assets

 

Balance at January 1, 2018

  $ 13,074     $ 28,700     $ 1,669  

Amortization expense

    -       -       (106 )

Balance at June 30, 2018

  $ 13,074     $ 28,700     $ 1,563  

 

The following table reflects the components of the finite-lived intangible assets as of June 30, 2019 (in thousands):

 

   

Gross Amount

   

Accumulated Amortization

   

Net Carrying Value

 

Intangible assets - AZEDRA product rights

  $ 4,900     $ 642     $ 4,258  

Intangible assets - Somerset

    1,245       80       1,165  

Intangible assets - EXINI technology

    2,120       768       1,352  

Total

  $ 8,265     $ 1,490     $ 6,775  

 

 

Note 7. Accrued Expenses

 

The carrying value of our accrued expenses approximates fair value, as it represents amounts that will be satisfied within one year. Accrued expenses consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Accrued legal and professional fees

  $ 6,763     $ 1,305  

Accrued clinical trial costs

    4,514       2,318  

Accrued payroll and related costs

    2,254       2,871  

Accrued contract manufacturing costs

    1,753       2,516  

Accrued consulting costs

    734       862  

Other

    920       661  

Accrued expenses

  $ 16,938     $ 10,533  

 

 

 

Note 8. Commitments and Contingencies

 

We are or may be involved in disputes, governmental and/or regulatory inspections, inquiries, investigations, and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows. While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.

 

Abbreviated New Drug Application Litigations

 

RELISTOR Subcutaneous Injection

 

Paragraph IV Certifications - Mylan

 

On or about October 6, 2015, November 20, 2015, December 22, 2015, and December 23, 2015, Progenics, Salix Pharmaceuticals, Inc. (“Salix”) and Wyeth LLC (“Wyeth”) received four separate notifications of a Paragraph IV certification for RELISTOR (methylnaltrexone bromide) subcutaneous injection, for certain patents that are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, also known as “the Orange Book.” The certifications resulted from the filing by Mylan Pharmaceuticals Inc. of an Abbreviated New Drug Application (“ANDA”) with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

District Court Actions

 

Progenics, Salix, Valeant (now Bausch Health Companies Inc., “Bausch”), and Wyeth filed suit against Mylan Pharmaceuticals, Inc. and Mylan Inc. in the District of New Jersey on November 19, 2015 (2:15-cv-8180-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent Nos. 8,247,425, 8,420,663, 8,552,025, and 8,822,490 based upon Mylan Pharmaceutical Inc.’s filing of its ANDA seeking to obtain approval to market a generic version of RELISTOR vials before some or all of these patents expire. On February 4, 2016, Progenics, Salix, Bausch, and Wyeth filed an amended complaint, identifying Mylan Laboratories Ltd. as an additional Defendant, and further seeking declaratory judgment of infringement of U.S. Patent No. 9,180,125. Progenics, Salix, Bausch, and Wyeth filed suit against Mylan Pharmaceuticals, Inc., Mylan Laboratories Ltd., and Mylan Inc. in the District of New Jersey on January 4, 2016 (2:16-cv-00035-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent Nos. 8,247,425, 8,420,663, 8,552,025, and 8,822,490 based upon Mylan Pharmaceutical Inc.’s filing of its ANDA seeking to obtain approval to market a generic version of RELISTOR prefilled syringes before some or all of these patents expire. On January 25, 2016, Progenics, Salix, Bausch, and Wyeth filed an amended complaint, further seeking declaratory judgment of infringement of U.S. Patent No. 9,180,125. Progenics, Salix, Bausch, and Wyeth filed suit against Mylan Pharmaceuticals, Inc., Mylan Laboratories Ltd., and Mylan Inc. in the District of New Jersey on September 1, 2017 (2:17-cv-06714-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent No. 9,669,096 based upon Mylan Pharmaceutical Inc.’s filing of ANDAs seeking to obtain approval to market generic versions of RELISTOR vials and prefilled syringes before the patents expires. On September 18, 2017, Progenics, Salix, Bausch, and Wyeth filed an amended complaint, further seeking declaratory judgment of infringement of U.S. Patent No. 9,492,445.

 

The 2:15-cv-8180-SRC-CLW, 2:16-cv-00035-SRC-CLW, 2:15-cv-08353-SRC-CLW, and 2:16-cv-00889-SRC-CLW actions were consolidated into a single action in the District of New Jersey (2:15-cv-08180-SRC-CLW). On May 1, 2018, the Court granted Plaintiffs’ motion for partial summary judgment as to the validity of claim 8 of U.S. Patent No. 8,552,025. On May 23, 2018, the Court entered an order for final judgment under Fed. R. Civ. P. 54(b) in favor of Plaintiffs and against Mylan as to claim 8 of the ’025 patent.

 

Litigation in the 2:17-cv-06714-SRC-CLW action is underway. Fact discovery in this action has closed and expert discovery deadlines have not yet been set. This action has been consolidated for purposes of trial only with the 2:15-cv-8180 action.

 

 

Federal Circuit Appeal

 

On May 25, 2018, Mylan filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit. The matter is currently pending on appeal at the Federal Circuit.

 

On July 9, 2018, Bausch and Salix filed a motion to disqualify Katten Muchin Rosenman LLP as counsel for Mylan. On July 17, 2018, an order was issued stating the briefing on the merits of Mylan’s appeal pending the disposition of the motion to disqualify. Oral argument was held on September 12, 2018. A decision disqualifying Katten Muchin Rosenman LLP as counsel for Mylan was issued on February 8, 2019, by the Federal Circuit. Merits briefing is currently underway. Mylan submitted its opening brief on April 9, 2019. Plaintiffs filed their responsive brief on July 2, 2019. Mylan filed its reply brief on August 6, 2019.

 

Paragraph IV Certification – Actavis

 

On or about October 27, 2015, January 5, 2016, and January 8, 2016, Progenics, Salix and Wyeth received three separate notifications of a Paragraph IV certification for certain patents for RELISTOR (methylnaltrexone bromide) subcutaneous injection, for certain patents that are listed in the FDA’s Orange Book. The certifications resulted from the filing by Actavis LLC of an ANDA with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

Settlement Agreement - Actavis

 

On May 25, 2018, Progenics, Bausch, Salix, Wyeth (Progenics, Bausch and Salix, each “Plaintiff” and collectively “Plaintiffs”) and Actavis LLC (“Actavis”) entered into a Settlement and License Agreement (the “Actavis Agreement”) relating to Civil Action No. 2:15-cv-08180 and Civil Action No. 2:17-cv-06714. The following is a summary of the material terms of the Actavis Agreement. The Actavis Agreement provides for a full settlement and release by both Plaintiffs and Actavis of all claims that were or could have been asserted in the District Court Cases and all resulting damages or other remedies. Plaintiffs and Actavis have agreed to and, in fact, filed a Stipulated Consent Judgment and Injunction after the execution of the Actavis Agreement. Plaintiffs and Actavis have further acknowledged and agreed that the 30-month stay imposed by the FDA in relation to the approval of Actavis’ ANDAs for the Actavis Products (the “Actavis ANDAs”) should be terminated.

 

Under the Actavis Agreement, Plaintiffs grant Actavis a non-exclusive, royalty-free, non-transferable, non-sublicensable, limited license under the Patents-In-Suit to make, import, and sell each of the Actavis Products in the U.S. beginning on the earliest of (a) January 1, 2028; (b) for each of the Actavis Products, if Actavis is a “First Applicant” (as defined in 21. U.S.C. § 355(j)(5)(B)(iv)(II)) and has not forfeited, relinquished or otherwise waived its 180-day exclusivity, 180 days prior to the date on which an entity not a First Applicant is permitted to commercially sell such Actavis Product in the U.S. under authorization from Plaintiffs; (c) for each of the Actavis Products, if Actavis either is not a First Applicant or otherwise has forfeited, relinquished or otherwise waived its 180-day exclusivity, the earlier of (i) 181 days after any third party that is a First Applicant markets a corresponding single-dose vial or pre-filled syringe that has been FDA approved or submitted for approval under an ANDA as a generic version of RELISTOR® Injection for subcutaneous use (the “Generic Products”) in the U.S., or (ii) the date on which a third party that is either not a First Applicant or otherwise has waived its 180-day exclusivity markets, or is first authorized by Plaintiffs to begin marketing, such Generic Product; (d) for each of the Actavis Products, the date on which a third party that has sought or received approval from the FDA under a “New Drug Application” (as defined in the US Federal Drug and Cosmetic Act and regulations promulgated thereunder) (“NDA”) for a corresponding single-dose vial or pre-filled syringe of methylnaltrexone bromide for subcutaneous use for which RELISTOR® Injection is the listed drug (a “Section 505(b)(2) Applicant”) markets or is first authorized by Plaintiffs to begin marketing such corresponding product; (e) for each of the Actavis Products, the date on which a corresponding generic version of the single-dose vial or pre-filled syringe of methylnaltrexone bromide for subcutaneous use approved under NDA No. 021964 for RELISTOR® Injection that is marketed or intended for marketing in the U.S. without the RELISTOR® trademark (an “Authorized Generic Product”) is first marketed in the U.S. by a third party; or (f) the earlier of (i) the date on which a final court decision is entered holding that each of the unexpired claims of the Patents-In-Suit are invalid and/or unenforceable, or (ii) the date on which the Patents-In-Suit have expired, been permanently abandoned, or delisted from the Orange Book. The Actavis Agreement also gives Actavis a limited right to grant sublicenses to its affiliates for certain pre-marketing activities.

 

 

Paragraph IV Certification - Par

 

On or about July 15, 2017, Progenics, Salix and Wyeth received notification of a Paragraph IV certification for RELISTOR (methylnaltrexone bromide) subcutaneous injection, for certain patents that are listed in the FDA’s Orange Book. The certification resulted from the filing by Par Sterile Products, LLC (“Par Sterile”) of an ANDA with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

District Court Actions

 

Progenics, Salix, Bausch, and Wyeth filed suit against Par Sterile Products, Par Pharmaceutical, Inc. (“Par Pharmaceutical” and, together with Par Sterile, “Par”), and Endo International plc in the District of New Jersey on August 25, 2017 (2:17-cv-06449-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent Nos. 8,247,425, 8,420,663, 8,552,025, 8,822,490, 9,180,125, and 9,669,096 based upon Par Sterile Product’s filing of an ANDA seeking to obtain approval to market a generic version of RELISTOR vials before some or all of these patents expire.

 

Progenics, Salix, Bausch, and Wyeth filed suit against Par Sterile Products, Par Pharmaceutical, and Endo International plc in the Southern District of New York on August 25, 2017 (1:17-cv-06557-PAE) seeking declaratory judgment of infringement of U.S. Patent Nos. 8,247,425, 8,420,663, 8,552,025, 8,822,490, 9,180,125, and 9,669,096 based upon Par Sterile Product’s filing of an ANDA seeking to obtain approval to market a generic version of RELISTOR vials before some or all of these patents expire. This action was voluntarily dismissed on November 30, 2017.

 

Settlement Agreement - Par

 

On May 10, 2018, Progenics, Bausch, Salix, Wyeth and Par entered into a Settlement and License Agreement (the “Par Agreement”) relating to Civil Action No. 17-06449-SRC-CLW (the “District Court Case”). The following is a summary of the material terms of the Par Agreement.

 

The Par Agreement provides for a full settlement and release by both Plaintiffs and Par of all claims that were or could have been asserted in the District Court Case and all resulting damages or other remedies. Plaintiffs and Par have agreed to and, in fact, filed a Stipulated Consent Judgment and Injunction after the execution of the Par Agreement. Plaintiffs and Par have further acknowledged and agreed that the 30-month stay imposed by the FDA in relation to the approval of Par’s ANDA for the Par Products (the “Par ANDA”) should be terminated.

 

Under the Par Agreement, Plaintiffs grant Par a non-exclusive, royalty-free, non-transferable, non-sublicensable, limited license under the Patents-In-Suit to make, import, and sell the Par Products in the U.S., or make outside the U.S. solely for importation into the U.S. (the “Par License”) beginning on the earliest of (i) September 30, 2030; (ii) for either of the Par Products, one hundred eighty-one (181) days after any third party who is the “First Applicant” (as defined in 21. U.S.C. § 355(j)(5)(B)(iv)(II)) markets a single-dose vial or pre-filled syringe that has been FDA approved or submitted for approval under an ANDA as a generic version of RELISTOR® Injection for subcutaneous use (the “Generic Products”); (iii) for either of the Par Products, the date on which a non-First Applicant third party markets an authorized generic (under the RELISTOR® New Drug Application (“NDA”) but without the RELISTOR® trademark) single-dose vial or pre-filled syringe of methylnaltrexone bromide for subcutaneous use in the U.S.; (iv) for either of the Par Products, the date on which a third party who is not a First Applicant (or who is a First Applicant who has forfeited or otherwise waived its 180-day exclusivity) markets or is first authorized by Plaintiffs to market the Generic Products in the U.S.; (v) the date on which a final court decision is entered holding that each of the asserted claims against Par in the District Court Case from the Patents-In-Suit are invalid and/or unenforceable, or not infringed by the single-dose vial Par Product; or (vi) the date on which the Patents-In-Suit have expired, been permanently abandoned or delisted from the FDA’s Orange Book. Plaintiffs have also granted to Par a limited pre-commercialization license to manufacture and/or import the Par Products into the U.S. starting one hundred fifty (150) days prior to the effective date of the Par License solely to the extent reasonably necessary to enable Par to market the Par Products in the U.S. on or after the effective date of the Par License.

 

RELISTOR Tablets - Actavis

 

Paragraph IV Certifications

 

On or about October 24, 2016 and October 24, 2017, Progenics, Salix, Bausch and Wyeth received two separate notifications of a Paragraph IV certification for RELISTOR (methylnaltrexone bromide) tablets, for certain patents that are listed in the FDA’s Orange Book. The certification resulted from the filing by Actavis Laboratories Fl., Inc. (“Actavis”) of an ANDA with the FDA, challenging such patents for RELISTOR tablets and seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

 

 

District Court Actions

 

Progenics, Salix, Bausch, and Wyeth filed suit against Actavis, Actavis LLC, Teva Pharmaceuticals USA, Inc., and Teva Pharmaceuticals Industries Ltd. in the District of New Jersey on December 6, 2016 (2:16-cv-09038-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent Nos. 8,420,663, 8,524,276, 8,956,651, 9,180,125, and 9,314,461 based upon Actavis’s filing of an ANDA seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

 

Progenics, Salix, Bausch, and Wyeth filed suit against Actavis, Actavis LLC, Teva Pharmaceuticals USA, Inc., and Teva Pharmaceuticals Industries Ltd. in the District of New Jersey on December 8, 2017 (2:17-cv-12857-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent Nos. 9,724,343 and 9,492,445 based upon Actavis’s filing of an ANDA seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

 

The 2:16-cv-09038-SRC-CLW and 2:17-cv-12857-SRC-CLW actions were consolidated into a single action in the District of New Jersey (2:16-cv-09038-SRC-CLW). A four day bench trial was held from May 6, 2019 through May 9, 2019. On July 17, 2019, the Court issued an Order finding the asserted claims of U.S. Patent No. 8,524,276 valid and infringed. The Court additionally ordered that the effective date of any approval of Actavis’s ANDA No. 209615 may not be earlier than the expiration date of U.S. Patent No. 8,524,276.

 

Progenics, Salix, Bausch, and Wyeth filed suit against Actavis, Actavis LLC, Teva Pharmaceuticals USA, Inc., and Teva Pharmaceuticals Industries Ltd. in the District of New Jersey on June 13, 2019 (2:19-cv-13722-SRC-CLW) seeking declaratory judgment of infringement of U.S. Patent No. 10,307,417 based upon Actavis’s filing of an ANDA seeking to obtain approval to market a generic version of RELISTOR tablets before this patent expires. Litigation in the 2:19-cv-13722-SRC-CLW action is not yet underway.

 

European Opposition Proceedings

 

In addition to the above described ANDA notifications, in October 2015, Progenics received notices of opposition to three European patents relating to methylnaltrexone. Notices of opposition against EP1615646 were filed on September 24, 2015 separately by each of Actavis Group PTC ehf and Fresenius Kabi Deutschland GmbH. Notices of opposition against EP2368553 were filed on September 29, 2015 and September 30, 2015 by Fresenius Kabi Deutschland GmbH and Actavis Group PTC ehf, respectively. Notices of opposition against EP2368554 were filed on September 24, 2015 separately by each of Actavis Group PTC ehf and Fresenius Kabi Deutschland GmbH. On May 11, 2017, the opposition division provided notice that EP2368553 will be revoked. On June 28, 2017, the opposition division provided notice that EP1615646 will be revoked. On July 4, 2017, the opposition division provided notice that EP2368554 will be revoked. Each of these matters are on appeal with the European Patent Office. Oral proceedings for EP1615646 are set to occur on September 22, 2020. A date for oral proceedings has not yet been set in the appeals concerning EP2368553 and EP2368554.

 

For each of the above-described proceedings, we and Bausch continue to cooperate closely to vigorously defend and enforce RELISTOR intellectual property rights. Pursuant to the RELISTOR license agreement between Progenics and Bausch, Bausch has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement.

 

We are or may be from time to time involved in various other disputes, governmental and/or regulatory inspections, inquires, investigations and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows.

 

PSMA-617

 

German District Court Litigation

 

We announced a lawsuit and associated worldwide patent ownership dispute based on our claims to certain inventions related to PSMA-617, a PSMA-targeted radiopharmaceutical compound under development for the treatment of prostate cancer that is the subject of certain European and U.S. Patent Applications filed by the University of Heidelberg (“the University”).

 

 

On November 8, 2018, MIP filed a complaint against the University in the District Court of Mannheim in Germany. In this Complaint, the Company claims that the discovery and development of PSMA-617 was related to work performed under a research collaboration sponsored by MIP. MIP alleged that the University breached certain contracts with MIP and that MIP is the co-owner of inventions embodied in certain worldwide patent filings related to PSMA-617, currently pending in Europe and the United States that were filed by the University in its own name. On February 27, 2019, Endocyte, Inc., a wholly owned subsidiary of Novartis AG, filed a motion to intervene in the German litigation. Endocyte is the exclusive licensee of the patent rights that are the subject of the German proceedings.

 

On November 27, 2018, MIP requested that the European Patent Office (“EPO”) stay the examination of European Patent (EP) 3 038 996 A1 (EP 14 799 340.6) and of the Divisional Applications EP 18 172 716.5, EP18 184 296.4, and EP 18 203 547.7 pending a decision from the German District Court on MIP’s Complaint. On December 10, 2018, the EPO granted MIP’s request and stayed the examination of the patent and patent applications effective November 27, 2018. Likewise, on December 20, 2018, MIP filed a Confirmation of Ownership with the United States Patent and Trademark Office (“USPTO”) in the corresponding US patent applications (US Serial Nos. 15/131,118; 16/038,729 and 16/114988). MIP’s filing with the USPTO takes the position that, in light of the collaboration and contracts between MIP and the University, MIP is the co-owner of these pending U.S. patent applications.

 

On February 27, 2019, the German District Court entered two orders in the litigation. First, the Court set €416, 000 as the amount MIP must deposit with the Court as security in the event of an unfavorable final decision on the merits of the dispute. Second, the Court set a hearing date of August 6, 2019 during which it will consider the various arguments of the parties and determine the next steps of the litigation. On August 6, the District Court of Mannheim in Germany held the first oral hearing in the case. The Court considered procedural matters and granted the parties the right to make further submissions.

 

 

Note 9. Operating Leases

 

We lease office and manufacturing space and certain office equipment under noncancelable operating leases. We determine whether an arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid, by using the lease term and discount rate determined at lease commencement. As our leases do not provide an implicit rate, we use our incremental borrowing rate of 9.5% commensurate with the underlying lease terms to determine the present value of our lease payments. Rental payments are recognized as rent expense on a straight-line basis over the term of the lease and for the three and six months ended June 30, 2019, we recognized rent expense in the amount of $0.6 million and $1.1 million, respectively. Our leases have remaining lease terms of one year to 11.3 years, one of which includes an option to extend the lease for five years. For the three and six months ended June 30, 2019, cash payments against operating lease liabilities totaled $0.5 million and $1.0 million, respectively.

 

The information related to our leases is as follows (in thousands):

 

   

June 30,

 

Operating leases

 

2019

 

Operating ROU lease assets, noncurrent

  $ 13,889  

Operating lease liabilities, current

    555  

Operating lease liabilities, noncurrent

    15,312  

 

At June 30, 2019, future lease payments for noncancelable operating leases are as follows (in thousands):

 

2019 (excluding the six months ending June 30, 2019)

  $ 1,002  

2020

    2,040  

2021

    2,077  

2022

    2,213  

2023

    2,255  

Thereafter

    16,807  

Total future minimum lease payments

    26,394  

Less imputed interest

    (10,527 )

Total lease liabilities

  $ 15,867  

 

 

 

Note 10. Non-Recourse Long-Term Debt, Net

 

On November 4, 2016, through a new wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), we entered into a $50.0 million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”). Under the terms of the Royalty-Backed Loan, the lenders have no recourse to us or to any of our assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under our agreement with Bausch. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of 9.5%.

 

Under the terms of the loan agreement, payments of interest and principal, if any, are made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date. On each payment date prior to March 31, 2018, RELISTOR royalty payments received since the immediately preceding payment date were applied solely to the payment of interest on the loan, with any royalties in excess of the interest amount retained by us. Beginning on March 31, 2018, 50% of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan are used to repay the principal of the loan, with the balance retained by us. Starting on September 30, 2021, all of the RELISTOR royalties received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. The loan has a maturity date of June 30, 2025. Upon the occurrence of certain triggers in the loan agreement and if HCRP so elects, all of the RELISTOR royalty payments received after the immediately-preceding payment date shall be applied to the payment of interest and repayment of principal until the principal of the loan is fully repaid. In the event of such an election by HCRP, we have the right to repay the loan without any prepayment penalty.

 

In connection with the Royalty-Backed Loan, the debt issuance costs have been recorded as a debt discount in our consolidated balance sheets and are being amortized and recorded as interest expense throughout the life of the loan using the effective interest method.

 

The following tables summarize the components of the Royalty-Backed Loan in our condensed consolidated financial statements for the periods presented (in thousands):

 

   

June 30,

   

December 31,

 

Condensed Consolidated Balance Sheets

 

2019

   

2018

 

Outstanding principal balance, current portion

  $ 6,057     $ 5,688  

Unamortized debt discount, current portion

    (251 )     (269 )

Current portion of debt, net

  $ 5,806     $ 5,419  
                 

Outstanding principal balance, long-term portion

  $ 36,715     $ 39,674  

Unamortized debt discount, long-term portion

    (373 )     (494 )

Long-term debt, net

  $ 36,342     $ 39,180  

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

Condensed Consolidated Statements of Operations

 

2019

   

2018

   

2019

   

2018

 

Interest expense

  $ 1,053     $ 1,176     $ 2,130     $ 2,381  

Non-cash interest expense

    69       74       140       137  

Total interest expense included in interest (expense) income, net

  $ 1,122     $ 1,250     $ 2,270     $ 2,518  

 

As of June 30, 2019, we were in compliance with all material covenants under the Royalty-Backed Loan and there was no material adverse change in our business, operations, or financial conditions, as defined in the loan agreement.

 

 

Note 11. Stockholders Equity

 

Common Stock and Preferred Stock

 

We are authorized to issue 160.0 million shares of our common stock, par value $0.0013, and 20.0 million shares of preferred stock, par value $0.001. The Board of Directors (the “Board”) has the authority to issue common and preferred shares, in series, with rights and privileges as determined by the Board.

 

 

Shelf Registration 

 

During the first quarter of 2017, we filed a shelf registration statement that permitted: (a) the offering, issuance and sale of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities, warrants, rights and/or units; and (b) as part of the $250.0 million, the offering, issuance and sale by us of up to a maximum aggregate offering price of $75.0 million of our common stock under our sales agreement with Cantor Fitzgerald & Co. (“Cantor”) in one or more at-the-market (“ATM”) offerings (the “2017 Sales Agreement”).

 

In October 2018, we filed a new shelf registration statement. The new shelf registration replaced our prior shelf registration statement, pursuant to which no additional securities will be offered or sold. The new shelf registration statement permits: (a) the offering, issuance and sale of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities, warrants, rights and/or units; and (b) as part of the $250.0 million, the offering, issuance and sale by us of up to a maximum aggregate offering price of $75.0 million of our common stock under our sales agreement with Cantor in one or more ATM offerings.

 

In addition, in October 2018 we entered into a new sales agreement with Cantor, as sales agent, which replaced the 2017 Sales Agreement (the “2018 Sales Agreement”). Pursuant to the 2018 Sales Agreement, we may offer and sell through Cantor, from time to time, shares of our common stock up to an aggregate offering price of $75.0 million. The 2018 Sales Agreement may be terminated by Cantor or us at any time upon ten days’ notice, or by Cantor at any time in certain circumstances, including the occurrence of a material adverse change in our business or financial condition.

 

 

Note 12. Stock-Based Compensation

 

Equity Incentive Plans

 

We adopted the following stockholder-approved equity incentive plans:

 

●     The 2005 Stock Incentive Plan (the “2005 Plan”), which authorized the issuance of up to 11,450,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2005 Plan was terminated in June 2018 at the time the 2018 Stock Incentive Plan was approved. Shares available for new awards under the 2005 Plan at the time of termination became available for awards under the 2018 Stock Incentive Plan. Options granted before termination of the 2005 Plan will continue to remain outstanding until exercised, cancelled or expired.

 

●     The 2018 Stock Incentive Plan (the “2018 Plan”), pursuant to which we are authorized to issue up to 4,800,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2018 Plan will terminate on March 27, 2028.

 

The stock option plans provide that options may be granted at an exercise price of 100% of fair market value of our common stock on the date of grant, may be exercised in full or in installments, at the discretion of the Board or its Compensation Committee, and must be exercised within ten years from date of grant. Stock options generally vest pro rata over three to five years. We recognize stock-based compensation expense on a straight-line basis over the requisite service (vesting) period based on fair values. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of stock-based compensation expense as of the grant date. We adjust the total amount of stock-based compensation expense recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

 

 

Stock Options

 

The following table summarizes stock options activity for the six months ended June 30, 2019 (in thousands, except per share data or as otherwise noted):

 

                   

Weighted

 
           

Weighted

   

Average

 
   

Number

   

Average

   

Remaining

 
   

of Shares

   

Exercise Price

   

Contractual Life

 

Outstanding at January 1, 2019

    6,264     $ 6.79       6.02  

Granted

    1,392     $ 4.52          

Cancelled

    (230 )   $ 7.17          

Exercised

    (225 )   $ 5.33          

Expired

    (27 )   $ 7.79          

Outstanding at June 30, 2019

    7,174     $ 6.38       6.44  

Exercisable at June 30, 2019

    4,647     $ 6.63       5.03  

Vested and expected to vest at June 30, 2019

    6,519     $ 6.46       6.17  

 

The weighted-average fair value of options granted during the three and six months ended June 30, 2019 was $2.37 and $2.86 per share, respectively and during the three and six months ended June 30, 2018 was $6.12 and $4.58 per share, respectively.

 

The total intrinsic value (the excess of the market price over the exercise price) was approximately $5.1 million for stock options outstanding, $2.7 million for stock options exercisable, and $4.4 million for stock options vested and expected to vest as of June 30, 2019. No stock options were exercised during the six months ended June 30, 2018.

 

Stock-Based Compensation Expense

 

We account for stock-based awards issued to employees in accordance with the provisions of ASC 718 (Topic 718, Compensation – Stock Compensation). We recognize stock-based compensation expense on a straight-line basis over the service period of the award, which is generally three to five years. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC 718 and ASC 505-50 (Subtopic 50 “Equity-Based Payments to Non-Employees” of Topic 505, Equity). Options granted to consultants are periodically revalued as the options vest and are recognized as an expense over the related period of service or the vesting period, whichever is longer. Under the provisions of ASC 718, members of the Board are considered employees for calculation of stock-based compensation expense.

 

We estimated the fair value of the stock options granted on the date of grant using a Black-Scholes valuation model that used the weighted-average assumptions noted in the following table. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. The expected life (estimated period of time that we expect employees, directors, and consultants to hold their stock options) was estimated based on historical rates for three group classifications, (i) employees, (ii) outside directors and officers, and (iii) consultants. Expected volatility was based on historical volatility of our stock price for a period equal to the stock option’s expected life and calculated on a daily basis. The expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Risk-free interest rate

    2.04 %     2.91 %     2.61 %     2.71 %

Expected life (in years)

    5.27       7.15       6.52       6.72  

Expected volatility

    60 %     70 %     66 %     69 %

Expected dividend yield

    --       --       --       --  

 

Stock-based compensation expense for the three and six months ended June 30, 2019 and 2018 was recorded in our condensed consolidated statement of operations as follows (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Research and development expenses

  $ 387     $ 452     $ 837     $ 977  

Selling, general and administrative expenses

    607       1,678       1,234       2,201  

Total stock-based compensation expense

  $ 994     $ 2,130     $ 2,071     $ 3,178  

 

At June 30, 2019, unrecognized stock-based compensation expense related to stock options was approximately $5.9 million and is expected to be recognized over a weighted-average period of approximately 2.2 years.

 

 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in understanding the business of Progenics Pharmaceuticals, Inc. and its subsidiaries (the “Company”, “Progenics”, “we”, or “us”). MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2018. Our results of operations discussed in MD&A are presented in conformity with accounting principles generally accepted in the U.S. (“GAAP”). We operate under a single research and development business segment. Therefore, our results of operations are discussed on a consolidated basis.

 

Note Regarding Forward-Looking Statements

 

This document and other public statements we make may contain statements that do not relate strictly to historical fact, any of which may be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements contained in this communication that refer to our estimated or anticipated future results or other non-historical facts are forward-looking statements that reflect our current perception of existing trends and information as of the date of this communication. Forward looking statements generally will be accompanied by words such as anticipate, believe, plan, could, should, estimate, expect”, forecast, outlook, guidance, intend, may, might, will, possible, potential, predict, project, or other similar words, phrases or expressions. In evaluating such statements, we urge you to specifically consider the various risk factors identified under Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018, as updated by our subsequent Quarterly Reports on Form 10-Q, which could cause actual events or results to differ materially from those indicated by forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such statements. While it is impossible to identify or predict all such matters, these differences between forward-looking statements and our actual results, performance or achievement may result from, among other things; the inherent uncertainty of the timing and success of, and expense associated with, research, development, regulatory approval and commercialization of our products and product candidates, including the risks that clinical trials will not commence or proceed as planned; products which appear to be promising in early trials will not demonstrate efficacy or safety in larger-scale trials; clinical trial data on our products and product candidates will be unfavorable; our products will not receive marketing approval from regulators or, if approved, do not gain sufficient market acceptance to justify development and commercialization costs; the sales of RELISTOR® and other products by our partners and the revenue and income generated for us thereby may not meet expectations; our commercial launch of AZEDRA® may not meet revenue and income expectations; competing products currently on the market or in development might reduce the commercial potential of our products; we, our collaborators or others might identify side effects after the product is on the market; efficacy or safety concerns regarding marketed products, whether or not originating from subsequent testing or other activities by us, governmental regulators, other entities or organizations or otherwise, and whether or not scientifically justified, may lead to product recalls, withdrawals of marketing approval, reformulation of the product, additional pre-clinical testing or clinical trials, changes in labeling of the product, the need for additional marketing applications, declining sales, or other adverse events; the inherent uncertainty of outcomes in intellectual property disputes such as the dispute with University of Heidelberg regarding PSMA-617; the costs and management distraction attendant to activist stockholder campaigns; and risks related to changes in the composition of our Board of Directors following our most recent annual meeting of stockholders.

 

We are also subject to risks and uncertainties associated with the actions of our corporate, academic and other collaborators and government regulatory agencies, including risks from market forces and trends; potential product liability; intellectual property, litigation and other dispute resolution, environmental and other risks; a potential inability to obtain sufficient capital, recruit and retain employees, enter into favorable collaborations, transactions, or other relationships, or the risk that existing or future relationships or transactions may not proceed as planned; the potential for cybersecurity breaches of our systems and information technology; the risk that current and pending patent protection for our products may be invalid, unenforceable or challenged, or fail to provide adequate market exclusivity, or that our rights to in-licensed intellectual property may be terminated for our failure to satisfy performance milestones; the risk of difficulties in, and regulatory compliance relating to, manufacturing products; and the uncertainty of our future profitability.

 

Risks and uncertainties to which we are subject also include general economic conditions, including interest and currency exchange-rate fluctuations and the availability of capital; changes in generally accepted accounting principles; the impact of legislation and regulatory compliance; the highly regulated nature of our business, including government cost-containment initiatives and restrictions on third-party payments for our products; trade buying patterns; the competitive climate of our industry; and other factors set forth in this document and other reports filed with the U.S. Securities and Exchange Commission (SEC). In particular, we cannot assure you that AZEDRA® or RELISTOR® will be commercially successful or be approved in the future in other indications or jurisdictions, or that any of our other programs will result in a commercial product.

 

 

We do not have a policy of updating or revising forward-looking statements and, except as expressly required by law, we disclaim any intent or obligation to update or revise any statements as a result of new information or future events or developments. It should not be assumed that our silence over time means that actual events are bearing out as expressed or implied in forward-looking statements.

 

Overview

 

Business

 

We are an oncology company focused on the development and commercialization of innovative targeted medicines and artificial intelligence to find, fight and follow cancer. Highlights of our recent progress include the first commercial revenue for AZEDRA, completion of enrollment of the PyL pivotal Phase 3 trial, and dosing of the first patient in the 1095 open label Phase 2 trial. Our pipeline includes therapeutic agents designed to precisely target cancer (AZEDRA, 1095 and PSMA TTC), as well as a prostate-specific membrane antigen (“PSMA”) targeted imaging agents for prostate cancer (PyL and 1404).

 

Our business strategy requires us to manage our business to provide for the continued development, manufacturing and potential commercialization of our proprietary and partnered product candidates. This includes identifying and advancing a pipeline of product candidates by identifying product candidates, technologies and businesses for acquisition and in-licensing that we believe are a strategic fit with our existing business.

 

Our strategy also calls for us to undertake increased research and development activities and to manage an increasing number of relationships with partners and other third parties, while simultaneously managing the capital necessary to support this strategy. An element of our research and development strategy has been to in-license technology and product candidates.

 

We may consider opportunities to out-license our development and clinical programs or to in-license or acquire additional oncology compounds and/or programs. We may also consider other strategic transactions from time to time that are consistent with our business strategy and objectives.

 

Product / Candidate

 

Description

 

Status

Market

Rights

Ultra-Orphan Theranostic

 

 

 

 

 

 

AZEDRA (iobenguane I 131) 
555 MBq/mL injection

 

Unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma 

 

Approved

U.S

Progenics

Prostate Cancer Theranostics

 

 

 

 

 

 

PyL (18F-DCFPyL)

 

PSMA-targeted PET/CT imaging agent for prostate cancer

 

Enrollment Completed
in Phase 3

Worldwide
(ex. EU, AU, & NZ)

Progenics

PyL (18F-DCFPyL)

 

PSMA-targeted PET/CT imaging agent for prostate cancer

 

Meeting with EMA

Europe

Curium

1095 (I 131 1095)

 

PSMA-targeted small molecule therapeutic for treatment of metastatic prostate cancer

 

Phase 2

Worldwide

Progenics

PSMA TTC (BAY 2315497)

 

PSMA-targeted antibody conjugate therapeutic for treatment of metastatic prostate cancer

 

Phase 1

Worldwide

Bayer

1404

 

Technetium-99m PSMA-targeted SPECT/CT imaging agent for prostate cancer

 

Meeting with EMA

Europe

ROTOP

Digital Technology

 

 

 

 

 

 

PSMA AI

 

Imaging analysis technology that uses artificial intelligence and machine learning to quantify and automate the reading of PSMA targeted imaging

 

Investigational Use Only

Worldwide

Progenics

Automated Bone Scan Index (aBSI)

 

Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning

 

CE marked (EU countries)
510(k) cleared in the U.S.

Worldwide (ex. Japan)

Progenics

Automated Bone Scan Index (BONENAVI)

 

Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning

 

Approved

Japan

FUJIFILM

Other Programs

 

 

 

 

 

 

RELISTOR Subcutaneous Injection
(methylnaltrexone bromide)

 

OIC in adults with chronic non-cancer pain or advanced-illness adult patients

 

Approved

Worldwide

Bausch

RELISTOR Tablets   
(methylnaltrexone bromide)

 

OIC in adults with chronic non-cancer pain

 

Approved

U.S.

Bausch

Leronlimab (PRO 140)

 

HIV Infection

 

Rolling BLA Submission to FDA

U.S.

CytoDyn

 

 

Ultra-Orphan Theranostic: 

 

 

AZEDRA® (iobenguane I 131) is a radiotherapeutic, approved for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy. AZEDRA is the first and only FDA-approved therapy for this indication. We anticipate opportunities for growth of AZEDRA beyond its existing label through the development of new indications.

 

Prostate Cancer Theranostics:

 

 

PyL (also known as 18F-DCFPyL) is a fluorinated PSMA-targeted PET imaging agent that enables visualization of both bone and soft tissue metastases to determine the presence or absence of recurrent and/or metastatic prostate cancer. In the U.S. and Canada, we completed enrollment of the pivotal Phase 3 trial evaluating the diagnostic performance and clinical impact of PyL in men with biochemical recurrence of prostate cancer. Curium has licensed exclusive rights to develop and commercialize PyL in Europe.

 

1095 (also known as I-131-1095) is a PSMA-targeted Iodine-131 labeled small molecule that is designed to deliver a dose of beta radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues. We are conducting a Phase 2 clinical trial in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC).

 

PSMA TTC is a thorium-227 labeled PSMA-targeted antibody therapeutic. PSMA TTC is designed to deliver a dose of alpha radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues. Bayer AG (“Bayer”) has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology in combination with Bayer’s alpha-emitting radionuclides. Bayer is developing PSMA TTC, a thorium-227 labeled PSMA-targeted antibody therapeutic. Bayer is conducting a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer.

 

1404 is a technetium-99m labeled small molecule which binds to PSMA and is used as an imaging agent to diagnose and detect localized prostate cancer as well as soft tissue and bone metastases. ROTOP Pharmaka GmbH (“ROTOP”), a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, has exclusive rights to develop and commercialize 1404 in Europe.

 

Digital Technology:

 

 

PSMA AI is an imaging analysis technology that uses artificial intelligence and machine learning to quantify and automate the reading of PSMA-targeted imaging. We recently completed a performance study of our automated segmentation algorithms with PyL/CT images from our PyL research access initiative. The results from this analysis will be presented at an upcoming scientific conference.

 

Automated Bone Scan Index (aBSI) calculates the disease burden of prostate cancer by quantifying the hotspots on bone scans and automatically calculating the bone scan index value, representing the disease burden of prostate cancer shown on the bone scan. This quantifiable and reproducible calculation of the bone scan index value is intended to aid in the diagnosis and treatment of men with prostate cancer and may have utility in monitoring the course of the disease. The Japanese rights to aBSI have been transferred and sold to FUJIFILM Toyama Chemical Co, Ltd. (“FUJIFILM”) under the name BONENAVI®. The cloud based aBSI 510(k) was cleared by the FDA for clinical use in the U.S. on August 5, 2019.

 

Other Programs: 

 

 

RELISTOR® is a treatment for opioid-induced constipation (“OIC”) that addresses its underlying mechanism of OIC and decreases the constipating side effects induced by opioid pain medications such as morphine and codeine without diminishing their ability to relieve pain. RELISTOR is approved in two forms: a subcutaneous injection (12 mg and 8 mg) and an oral tablet (450 mg once daily). Any references herein to RELISTOR do not imply that any other form or possible use of the drug has received approval. RELISTOR subcutaneous injection is being sold in the U.S., European Union (“E.U.”), and Canada, and RELISTOR tablets are being sold in the U.S. RELISTOR’s approved U.S. label and full U.S. prescribing information is available at www.RELISTOR.com. Other approved labels for RELISTOR apply in ex-U.S. markets.

 

Leronlimab (PRO 140) is a fully humanized monoclonal antibody which is a cellular targeting CCR5 entry antagonist and is currently in Phase 3 development for the treatment of HIV infection. It is owned by CytoDyn and, pursuant to our agreement with CytoDyn, we have the right to receive certain milestone and royalty payments. CytoDyn announced in March 2019 that it filed its first of three sections of its Biologics License Application (“BLA”) to the FDA for leronlimab for the treatment of HIV under the Rolling Review process.

 

 

Bausch Agreement

 

Under our agreement with Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch Health Companies Inc. (“Bausch”, which is the predecessor of Valeant Pharmaceuticals International, Inc.), we received a development milestone of $40.0 million upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, and a development milestone of $50.0 million for the U.S. marketing approval of an oral formulation of RELISTOR in 2016. We are also eligible to receive up to $200.0 million of commercialization milestone payments upon first achievement of specified U.S. net sales targets in any single calendar year. The following table summarizes the commercialization milestones:

 

U.S. Net Sales Levels in any Single Calendar Year

 

Payment

 
   

(In thousands)

 

In excess of $100 million

  $ 10,000  

In excess of $150 million

    15,000  

In excess of $200 million

    20,000  

In excess of $300 million

    30,000  

In excess of $750 million

    50,000  

In excess of $1 billion

    75,000  
    $ 200,000  

 

Each commercialization milestone payment is payable one time only, regardless of the number of times the condition is satisfied, and all six payments could be made within the same calendar year. We are also eligible to receive royalties from Bausch and its affiliates based on the following royalty scale: 15% on worldwide net sales up to $100 million, 17% on the next $400 million in worldwide net sales, and 19% on worldwide net sales over $500 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Bausch receives from sublicensees outside the U.S.

 

Bayer Agreement 

 

Under our April 2016 agreement with a subsidiary of Bayer granting Bayer exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, we received an upfront payment of $4.0 million and milestone payments totaling $5.0 million and could receive up to an additional $44.0 million in potential clinical and regulatory development milestones. We are also entitled to single-digit royalties on net sales, and potential net sales milestone payments up to an aggregate total of $130.0 million.

 

CytoDyn Agreement

 

We sold Leronlimab (PRO 140) to CytoDyn Inc. (“CytoDyn”) in 2012, which sale included milestone and royalty payment obligations to us. Leronlimab is a fully humanized monoclonal antibody which is a cellular targeting CCR5 entry antagonist and is currently in development for the treatment of HIV.

 

Under our 2012 agreement with CytoDyn, CytoDyn is responsible for all development, manufacturing and commercialization efforts. Pursuant to such agreement, we have received $5.0 million in upfront and milestone payments, together with rights to receive an additional $5.0 million upon the first U.S. or E.U. approval for the sale of the drug, and a 5% royalty on the net sales of approved product(s).

 

 

ROTOP Agreement

 

We entered into an exclusive license agreement with ROTOP, a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, to develop and commercialize 1404 in Europe.

 

Under the terms of the collaboration, ROTOP will be responsible for the development, regulatory approvals and commercialization of 1404 in Europe while Progenics is entitled to double-digit, tiered royalties on net sales in the territory.

 

FUJIFILM Agreement

 

We entered into a transfer agreement with FUJIFILM for the rights to the Company’s aBSI product in Japan for use under the name BONENAVI.

 

Under the terms of the agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from Progenics for use in Japan. In exchange, Progenics received $4.0 million in an upfront payment and FUJIFILM agreed to pay Progenics support and service fees for aBSI and other AI products over three years in Japan. BONENAVI has been licensed to FUJIFILM for use in Japan since 2011.

 

Results of Operations

 

The following table is an overview of our results of operations (in thousands, except percentages):

 

   

Three Months Ended

           

Six Months Ended

         
   

June 30,

           

June 30,

         
   

2019

   

2018

   

Change

   

2019

   

2018

   

Change

 

Total revenue

  $ 9,966     $ 3,878       157 %   $ 14,247     $ 7,067       102 %

Operating expenses

  $ 29,059     $ 18,216       (60% )   $ 51,575     $ 33,823       (52% )

Operating loss

  $ (19,093 )   $ (14,338 )     (33% )   $ (37,328 )   $ (26,756 )     (40% )

Net loss

  $ (19,700 )   $ (15,172 )     (30% )   $ (38,435 )   $ (28,596 )     (34% )

 

Revenue 

 

Our sources of revenue include AZEDRA product sales, royalties and license fees from Bausch and other collaborators. The following table is a summary of our worldwide revenue (in thousands, except percentages):

 

   

Three Months Ended

           

Six Months Ended

         
   

June 30,

           

June 30,

         

Source

 

2019

   

2018

   

Change

   

2019

   

2018

   

Change

 

AZEDRA product sales

  $ 270     $ -       N/A     $ 270     $ -       N/A  

Royalty income

    3,593       3,530       2 %     7,754       6,588       18 %

License and other revenue

    6,103       348       1654 %     6,223       479