PROGENICS PHARMACEUTICALS INC - 10-Q Quarterly Report

Back to GetFilings.com

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, 2004

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

For the transition period from ___________________ to

Commission file number 000-23143

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

DELAWARE	13-3379479
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

777 Old Saw Mill River Road
Tarrytown, New York 10591
(Address of principal executive offices)
(Zip Code)

(914) 789-2800
(Registrant’s telephone number, including area code)

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 31, 2004 there were 16,967,542 shares of common stock, par value $.0013 per share, of the registrant outstanding.

PROGENICS PHARMACEUTICALS, INC.

INDEX

Page No.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Balance Sheets at June 30, 2004 and December 31, 2003	3

Condensed Statements of Operations for the Three Months ended June 30, 2004 and 2003 and the Six	4
Months ended June 30, 2004 and 2003

Condensed Statement of Stockholders’ Equity and Comprehensive Loss
for the Six Months ended June 30, 2004	5

Condensed Statements of Cash Flows for the Six Months ended June 30, 2004 and 2003	6

Notes to Condensed Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3. Quantitative and Qualitative Disclosures about Market Risk	30

Item 4. Controls and Procedures	30


PART II – OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds	31

Item 4. Submission of Matters to a Vote of Security Holders	31

Item 6. Exhibits and Reports on Form 8-K	31

PROGENICS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
AT JUNE 30, 2004 AND DECEMBER 31, 2003
(Unaudited)

		June 30,			December 31,
		2004			2003

	ASSETS
Current assets:
	Cash and cash equivalents	$	27,829,204		$	47,737,467
	Marketable securities		10,623,137			11,383,535
	Amount due from joint venture		14,805
	Accounts receivable		798,186			796,929
	Other current assets		921,743			1,462,904

	Total current assets		40,187,075			61,380,835

Marketable securities			10,477,285			6,541,730
Fixed assets, at cost, net of accumulated depreciation and amortization			4,088,726			3,890,991
Investment in joint venture			139,718			541,078
Restricted cash			532,198			531,570

	Total assets	$	55,425,002		$	72,886,204

	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued liabilities	$	4,903,126		$	5,044,459
	Amount due to joint venture					108,687

	Total current liabilities		4,903,126			5,153,146
Deferred lease liability			46,273			50,364

	Total liabilities		4,949,399			5,203,510

Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.001 par value, 20,000,000 shares
	authorized; none issued and outstanding
	Common stock, $.0013 par value, 40,000,000 shares		22,046			21,633
	authorized; issued and outstanding—16,958,105
	in 2004 and 16,640,866 in 2003
	Additional paid-in capital		148,976,437			144,940,151
	Accumulated deficit		(98,394,045	)		(77,293,367	)
	Accumulated other comprehensive (loss) income		(128,835	)		14,277

	Total stockholders’ equity		50,475,603			67,682,694

	Total liabilities and stockholders’ equity	$	55,425,002		$	72,886,204

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

PROGENICS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

	For the three months ended						For the six months ended
	June 30,						June 30,

	2004			2003			2004			2003

Revenues:
Contract research and development
from joint venture	$	586,748		$	625,132		$	1,143,430		$	1,418,054
Research grants and contracts		1,543,635			1,048,115			2,729,770			2,165,533
Product sales		44,336			27,325			49,614			86,891

Total revenues		2,174,719			1,700,572			3,922,814			3,670,478

Expenses:
Research and development		9,376,001			6,219,784			17,749,488			11,971,930
General and administrative		3,038,321			2,307,307			5,853,183			3,927,449
Loss in joint venture		422,994			861,178			1,098,185			1,481,041
Depreciation and amortization		373,796			309,544			699,910			613,475

Total expenses		13,211,112			9,697,813			25,400,766			17,993,895

Operating loss		(11,036,393	)		(7,997,241	)		(21,477,952	)		(14,323,417	)
Other income (expense):
Interest income		191,850			158,065			408,742			382,191
Interest expense					(2,825	)					(4,520	)
Loss on sale of marketable securities		(31,468	)					(31,468	)

Total other income		160,382			155,240			377,274			377,671

Net loss	$	(10,876,011	)	$	(7,842,001	)	$	(21,100,678	)	$	(13,945,746	)

Net loss per share – basic and diluted	$	(0.64	)	$	(0.61	)	$	(1.26	)	$	(1.09	)

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

PROGENICS PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)

									ACCUMULATED
	COMMON STOCK			ADDITIONAL					OTHER		TOTAL
				PAID-IN			ACCUMULATED		COMPREHENSIVE		STOCKHOLDERS’			COMPREHENSIVE
	Shares		Amount	CAPITAL			DEFICIT		INCOME(LOSS)		EQUITY			LOSS

Balance at December 31, 2003	16,640,866	$	21,633		$	144,940,151	($77,293,367	)	$14,277		$	67,682,694

Issuance of compensatory
stock options						242,768						242,768

Sale of Common Stock under
employee stock purchase
plans and exercise of stock
options	317,239		413			3,793,518						3,793,931

Net loss							(21,100,678	)			(21,100,678		)	($21,100,678	)

Change in unrealized loss
on marketable securities									(143,112	)		(143,112	)	(143,112	)

Balance at June 30, 2004	16,958,105	$	22,046		$	148,976,437	($98,394,045	)	($128,835	)		$50,475,603		($21,243,790	)

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

PROGENICS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six months ended June 30,

	2004			2003

Cash flows from operating activities:
Net loss	$	(21,100,678	)	$	(13,945,746	)

Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		699,910			613,475
Loss on disposal of fixed assets		42,211
Loss on sale of marketable security		31,468
Amortization of discounts, net of premiums, on
marketable securities		381,773			391,845
Loss in joint venture		1,098,185			1,481,041
Adjustment to loss in joint venture		253,175			484,559
Noncash expenses incurred in connection with issuance of
common stock and stock options		242,768			61,570
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(1,257	)		315,844
Increase in amount due from joint venture		(14,805	)
Decrease in amount due to joint venture		(108,687	)
Decrease in other assets		541,161			936,167
Decrease in accounts payable and accrued expenses		(158,328	)		(509,457	)
Increase in investment in LLC		(950,000	)		(2,250,000	)
Decrease in deferred lease liability		(4,091	)		(14,253	)

Total adjustments		2,053,483			1,510,791

Net cash used in operating activities		(19,047,195	)		(12,434,955	)

Cash flows from investing activities:
Capital expenditures		(922,861	)		(675,584	)
Increase in restricted cash		(628	)		(39,372	)
Sales of marketable securities		10,370,199			21,229,000
Purchase of certificate of deposit					(2,000,000	)
Purchase of marketable securities		(14,101,709	)		(1,858,096	)

Net cash (used in) provided by investing activities		(4,654,999	)		16,655,948

Cash flows from financing activities:
Proceeds from the exercise of stock options and sale of common
stock under the Employee Stock Purchase Plan		3,793,931			1,185,581
Increase in deferred offering costs					(165,000	)

Net cash provided by financing activities		3,793,931			1,020,581

Net (decrease) increase in cash and cash equivalents		(19,908,263	)		5,241,574

Cash and cash equivalents at beginning of period		47,737,467			9,446,982

Cash and cash equivalents at end of period	$	27,829,204		$	14,688,556

Supplemental disclosure of noncash investing and financing activities:
Net fixed assets included in accounts payable and accrued expenses		16,995			10,830

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

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Interim Financial Statements

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’s principal programs are directed toward symptom management and supportive care, HIV infection and cancer. The Company has five product candidates in clinical development and several others in preclinical development. The Company was incorporated in Delaware on December 1, 1986. All of the Company’s operations are located in New York State. 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 provided to PSMA Development Company LLC (the “JV”) (a related party), the Company’s joint venture with Cytogen Corporation, should be sufficient to fund operations for at least the next 15 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 and contract research and development revenue from the JV, the Company has no committed external sources of capital and expects no significant product revenues for at least the next two years due to the time expected to be required to bring the Company’s products to the commercial marketing stage. For periods beyond 15 months, we may seek additional financing to fund operations through future offerings of equity or debt securities or agreements with corporate collaborators with respect to the development of our technologies. We also plan to seek funding from additional grants and government contracts. We cannot assure you, however, that we will be able to obtain additional funds on acceptable terms, if at all. We will require substantial funds to continue to conduct research and development activities, preclinical studies, clinical trials and other general and administrative activities. Our expenditures for these activities will include required payments under operating leases and licensing, collaboration and service agreements.

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, 2003.

2. Summary of Significant Accounting Policies

Revenue Recognition

Payments received from the JV for contract research and development are recognized as revenue as the related services are performed by the Company (see Note 6).

The Company has been awarded government research grants and contracts from the National Institutes of Health, an agency of the Department of Health and Human Services (the “NIH”). The NIH grants and contracts are used to subsidize the Company’s research projects described below (the “Projects”). NIH grant revenue is recognized on a pro rata basis as subsidized Project costs are incurred. Such method approximates the straight-line basis over the lives of the Projects. The NIH contract reimburses the Company for costs associated with the preclinical research, development and early clinical testing of a prophylactic vaccine designed to prevent HIV from becoming established in uninfected individuals exposed to the virus, as requested by the NIH. See Note 8 for additional information regarding the NIH contract.

PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)

The Company has derived all of its product revenue from the sale of research reagents. Product sales revenue is recognized at the time reagents are shipped. The reagents are products of the Company’s research and development efforts. The Company maintains no inventory of reagents.

In accordance with SAB 104, “Revenue Recognition”, and EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”, non-refundable fees, including payments for services, up-front licensing fees and milestone payments are recognized as revenue based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue in accordance with EITF Issue No. 91-6, “Revenue Recognition of Long-Term Power Sales Contract,” which is a systematic method that is representative of the revenue earned on obligations fulfilled under those arrangements. However, revenue recognized is limited to the amount of non-refundable fees received.

Interest income is recognized as earned.

For the three and six months ended June 30, 2004 and 2003, the Company’s research grant and contract revenue and contract research and development revenue came from the NIH and the PSMA Development Company LLC, respectively.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, maintenance of research equipment, costs related to research collaboration and licensing agreements, the cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the cost of manufacturing drug for use in research, preclinical development, and clinical trials. All costs associated with research and development are expensed as incurred.

For each clinical trial that the Company conducts, certain clinical trial costs, which are included in research and development expenses, are expensed based on the total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations provide services. At each period end, the Company evaluates the accrued expense balance related to these activities based upon information received from the suppliers and estimated progress towards completion of the research or development objectives to ensure that the balance is reasonably stated. Such estimates are subject to change as additional information becomes available.

3. Stock-Based Employee Compensation

The accompanying financial position and results of operations of the Company have been prepared in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). Under APB No. 25, 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 2004 and 2003 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.

PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)

		Three Months Ended June 30,				Six Months Ended June 30,

		2004		2003		2004		2003

Net loss, as reported	$	(10,876,011	)	(7,842,001	)	(21,100,678	)	(13,945,746	)
Deduct: Total stock-based employee compensation expense determined under fair value- based method for all awards		(1,715,562	)	(2,190,301	)	(4,146,553	)	(4,173,706	)


Pro forma net loss	$	(12,591,573	)	(10,032,302	)	(25,247,231	)	(18,119,452	)


Net loss per share amounts, basic and diluted:
As reported	$	(0.64	)	(0.61	)	(1.26	)	(1.09	)
Pro forma	$	(0.75	)	(0.78	)	(1.50	)	(1.42	)

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 92% in 2004 and 79% in 2003, expected lives of five years, zero dividend yield, and weighted-average risk-free interest rate of 3.17% in 2004 and 3.02% in 2003.

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.

4. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of June 30, 2004 and December 31, 2003 consist of the following:

		June 30,		December 31,
		2004		2003


Accounts payable	$	1,969,360	$	1,300,104
Accrued consulting and clinical trial costs		1,474,200		2,883,366
Accrued payroll and related costs		882,497		700,963
Professional fees payable		577,069		133,526
Other				26,500

	$	4,903,126	$	5,044,459

5. Net Loss Per Share

The Company’s basic net loss per share amounts have been computed by dividing net loss by the weighted average number of common shares outstanding during the respective periods. For the three and six months ended June 30, 2004 and 2003, the Company reported net losses and, therefore, no potentially dilutive securities were included in the computation of diluted per share amounts.

	Net Loss				Shares		Per Share
	(Numerator)				(Denominator)		Amount

2004:
Three months ended June 30, 2004:
Basic and Diluted:		($	10,876,011	)	16,894,132	($	0.64	)


Six months ended June 30, 2004:
Basic and Diluted:		($	21,100,678	)	16,801,421	($	1.26	)



2003:
Three months ended June 30, 2003:
Basic and Diluted:		($	7,842,001	)	12,869,784	($	0.61	)


Six months ended June 30, 2003:
Basic and Diluted:		($	13,945,746	)	12,800,228	($	1.09	)

Options which have been excluded from the diluted per share amounts because their effect would have been antidilutive include the following:

Three Months Ended June 30,

2004			2003

Wtd. Avg. Number		Wtd. Avg. Exercise Price	Wtd. Avg. Number		Wtd. Avg. Exercise Price

4,947,748	$	10.30	4,624,014	$	8.99

Six Months Ended June 30,

2004			2003

Wtd. Avg. Number		Wtd. Avg. Exercise Price	Wtd. Avg. Number		Wtd. Avg. Exercise Price

5,014,520	$	10.20	4,648,626	$	8.99

6. PSMA Development Company LLC

PSMA Development Company LLC (the “JV”) was formed on June 15, 1999 as a joint venture between the Company and Cytogen Corporation (each a “Member” and collectively, the “Members”) for the purposes of conducting research, development, manufacturing and marketing of products related to prostate-specific membrane antigen (“PSMA”). Each Member has equal ownership and equal representation on the JV’s management committee and equal voting rights and rights to profits and losses of the JV, as defined. In connection with the formation of the JV, the Members entered into a series of agreements, including an LLC Agreement, a Licensing Agreement and a Services Agreement (collectively, the “Agreements”) which generally define the rights and obligations of each Member, including but not limited to the obligations