Progenics Pharmaceuticals, Inc. (the Company) is a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. The Company applies its expertise in clinical medicine, immunology and molecular biology to develop biopharmaceuticals to fight viral diseases, such as human immunodeficiency virus (HIV) infection, and cancers, including malignant melanoma and prostate cancer, as well as to enhance symptom management and supportive care. The Company was incorporated in Delaware on December 1, 1986. All of the Company’s operations are located in New York. The Company operates in a single segment.

The Company believes that its existing capital resources together with revenue from currently approved government grants and contracts and revenue from its services agreement with PSMA Development Company LLC should be sufficient to fund operations for at least the next 12 months. There could be changes that would consume the Company’s assets before such time. The Company will require substantial funds to conduct research and development activities, preclinical studies, clinical trials and other related general and administrative activities. In addition, the Company’s cash requirements may vary materially from those now planned because of results of research and development and product testing, changes in existing relationships with, or new relationships with, licensees, licensors or other collaborators, changes in the focus and direction of the Company’s research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing patent claims, the regulatory approval process, manufacturing and marketing and other costs associated with the commercialization of products following receipt of regulatory approvals and other factors. Other than currently approved grants and research contracts, the Company has no committed external sources of capital and expects no significant product revenues for a number of years as it will take at least that much time, if ever, to bring the Company’s products to the commercial marketing stage. During the third quarter ended September 30, 2003, the Company filed with the U.S. Securities and Exchange Commission a Registration Statement for the public offering of common stock from time to time. See footnote 13. To fund operations beyond 12 months, the Company may sell its common stock pursuant to this Registration Statement and may seek additional financing, such as through other offerings of equity or debt securities or agreements with corporate partners and collaborators with respect to the development of its technology. There can be no assurance, however, that the Company will be able to obtain additional funds on acceptable terms, if at all.

The interim Condensed Financial Statements of the Company included in this report have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, these financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for such periods. The results of operations for interim periods are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, as amended.

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The accompanying financial position and results of operations of the Company have been prepared in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). Under APB No. 25, compensation expense is generally not recognized in connection with the awarding of stock option grants to employees, provided that, as of the grant date, all terms associated with the award are fixed and the quoted market price of the Company’s stock as of the grant date is equal to or less than the option exercise price.

In accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure, an amendment of SFAS 123” (SFAS No. 148), pro forma operating results have been determined as if the Company had prepared its financial statements in accordance with the fair value-based method of accounting. The following table illustrates the effect on net loss and net loss per share as if the Company had applied the fair value-based method of accounting to compute compensation expense for all stock based awards. Since option grants awarded during 2003 and 2002 vest over several years and additional awards are expected to be issued in the future, the pro forma results shown below are not likely to be representative of the effects on future years of the application of the fair value-based method.

For the purpose of the above pro forma calculation, the fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used in computing the fair value of options granted:  expected volatility of 75% in 2003 and 2002, expected lives of five years (six months for the employee stock purchase plan), zero dividend yield, and weighted-average risk-free interest rate of 2.48% in 2003, and 3.99% in 2002.

The fair value of options and warrants granted to non-employees for goods or services is expensed as the goods are utilized or the services performed.

In July 2003, the Company’s Chief Executive Officer was granted 225,000 non-qualified stock options under the Company’s 1996 Amended Stock Option Plan at an exercise price equal to the fair market value on the date of grant. Vesting of one-half of those options will occur nine years and eleven months from the date of grant unless accelerated upon the achievement of defined clinical, financial and operational performance milestones. On September 30, 2003, a performance milestone was achieved, resulting in the vesting of 33,750 options. The Company recognized compensation expense of $69,863 in connection with the vesting of those options, which represents the intrinsic value of those options on the date the performance milestone was achieved. Vesting upon the achievement of additional performance milestones could result in future compensation charges.

 

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The Company’s basic net loss per share amounts have been computed by dividing net loss by the weighted average number of common shares outstanding during the respective periods. For the three and nine months ended September 30, 2003 and 2002, the Company reported net losses and, therefore, no potentially dilutive securities were included in the computation of diluted per share amounts.