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 September 30, 2004
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 number 000-23143
PROGENICS
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
|
DELAWARE |
13-3379479 (I.R.S. Employer 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 November 5, 2004 there were 17,226,685 shares of common stock, par value $.0013 per share, of the registrant outstanding.
PROGENICS PHARMACEUTICALS, INC.
INDEX
2
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
AT SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
| September 30, | December 31, | |||||
| 2004 | 2003 | |||||
|
|
||||||
| ASSETS: | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 20,595,921 | $ | 47,737,467 | ||
| Marketable securities | 10,128,047 | 11,383,535 | ||||
| Accounts receivable | 1,470,905 | 790,792 | ||||
| Other current assets | 1,437,846 | 1,469,041 | ||||
| Total current assets | 33,632,719 | 61,380,835 | ||||
| Marketable securities | 9,896,644 | 6,541,730 | ||||
| Fixed assets, at cost, net of accumulated depreciation and amortization | 4,245,776 | 3,890,991 | ||||
| Investment in joint venture | 334,918 | 541,078 | ||||
| Restricted cash | 534,323 | 531,570 | ||||
| Total assets | $ | 48,644,380 | $ | 72,886,204 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||
| Current liabilities: | ||||||
| Accounts payable and accrued liabilities | $ | 7,653,271 | $ | 5,044,459 | ||
| Amount due to joint venture | 108,687 | |||||
| Total current liabilities | 7,653,271 | 5,153,146 | ||||
| Deferred lease liability | 44,227 | 50,364 | ||||
| Total liabilities | 7,697,498 | 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 authorized; issued and outstanding—17,199,177
in 2004 and 16,640,866 in 2003 |
22,359 | 21,633 | ||||
| Additional paid-in capital | 152,611,870 | 144,940,151 | ||||
| Unearned compensation | (2,593,058 | ) | ||||
| Accumulated deficit | (109,029,999 | ) | (77,293,367 | ) | ||
| Accumulated other comprehensive (loss) income | (64,290 | ) | 14,277 | |||
| Total stockholders’ equity | 40,946,882 | 67,682,694 | ||||
| Total liabilities and stockholders’ equity | $ | 48,644,380 | $ | 72,886,204 | ||
The accompanying notes are an integral part of these condensed financial statements.
3
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For
the three months ended September
30, |
For
the nine months ended September
30, |
|||||||||||
| |
|
|||||||||||
| 2004 | 2003 |
2004 |
2003 |
|||||||||
| Revenues: | ||||||||||||
| Contract research and development from joint venture | $ | 46,301 | $ | 828,375 | $ | 1,189,731 | $ | 2,730,988 | ||||
| Research grants and contracts | 2,313,331 | 1,065,249 | 5,043,101 | 3,230,782 | ||||||||
| Product sales | 1,858 | 10,055 | 51,472 | 96,946 | ||||||||
| Total revenues | 2,361,490 | 1,903,679 | 6,284,304 | 6,058,716 | ||||||||
| Expenses: | ||||||||||||
| Research and development | 9,195,152 | 6,197,426 | 26,944,640 | 18,169,356 | ||||||||
| General and administrative | 3,415,013 | 2,095,259 | 9,268,195 | 6,022,708 | ||||||||
| Loss in joint venture | 263,528 | 714,871 | 1,361,713 | 2,680,471 | ||||||||
| Depreciation and amortization | 315,682 | 342,051 | 1,015,592 | 955,526 | ||||||||
| Total expenses | 13,189,375 | 9,349,607 | 38,590,140 | 27,828,061 | ||||||||
| Operating loss | (10,827,885 | ) | (7,445,928 | ) | (32,305,836 | ) | (21,769,345 | ) | ||||
| Other income (expense): | ||||||||||||
| Interest income | 191,930 | 123,581 | 600,672 | 505,772 | ||||||||
| Interest expense | (4,520 | ) | ||||||||||
| Loss on sale of marketable securities | (31,468 | ) | ||||||||||
| Total other income | 191,930 | 123,581 | 569,204 | 501,252 | ||||||||
| Net loss | $ | (10,635,955 | ) | $ | (7,322,347 | ) | $ | (31,736,632 | ) | $ | (21,268,093 | ) |
| Net loss per share – basic and diluted | $ | (0.63 | ) | $ | (0.56 | ) | $ | (1.88 | ) | $ | (1.65 | ) |
The accompanying notes are an integral part of these condensed financial statements.
4
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
| COMMON
STOCK |
ADDITIONAL
PAID-IN CAPITAL |
UNEARNED COMPENSATION |
ACCUMULATED DEFICIT |
ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS) | TOTAL STOCKHOLDERS’ EQUITY | COMPREHENSIVE LOSS | ||||||||||
| |
||||||||||||||||
| Shares | Amount | |||||||||||||||
| Balance at December 31, 2003 | 16,640,866 | $21,633 | $144,940,151 | ($77,293,367 | ) | $14,277 | $67,682,694 | |||||||||
| Issuance of Restricted Stock | 167,750 | 218 | 2,826,370 | ($2,826,588) | ||||||||||||
| Amortization of unearned compensation | 233,530 | 233,530 | ||||||||||||||
| Issuance of compensatory stock options | 317,693 | 317,693 | ||||||||||||||
| Sale of Common Stock under employee stock purchase plans and exercise of stock options | 390,561 | 508 | 4,527,656 | 4,528,164 | ||||||||||||
| Net loss | (31,736,632 | ) | (31,736,632) | ($31,736,632) | ||||||||||||
| Change in unrealized gain (loss) on marketable securities | (78,567) | (78,567) | (78,567) | |||||||||||||
| Balance at September 30, 2004 | 17,199,177 | $22,359 | $152,611,870 | ($2,593,058) | ($109,029,999 | ) | ($64,290) | $40,946,882 | ($31,815,199) | |||||||
The accompanying notes are an integral part of these condensed financial statements.
5
PROGENICS
PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended September 30, | ||||||
| 2004 | 2003 | |||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | (31,736,632 | ) | $ | (21,268,093 | ) |
| |
|
|||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation and amortization | 1,015,592 | 955,526 | ||||
| Loss on disposal of fixed assets | 42,211 | |||||
| Loss on sale of marketable securities | 31,468 | |||||
| Amortization of discounts, net of premiums, on marketable securities | 522,055 | 515,287 | ||||
| Amortization of unearned compensation | 233,530 | |||||
| Loss in joint venture | 1,361,713 | 1,992,028 | ||||
| Adjustment to loss in joint venture | 794,447 | 688,443 | ||||
| Issuance of compensatory stock options | 317,693 | 186,715 | ||||
| Changes in assets and liabilities: | ||||||
| (Increase) decrease in accounts receivable | (680,113 | ) | 130,958 | |||
| Decrease in other assets | 31,195 | 635,473 | ||||
| Increase in investment in joint venture | (1,950,000 | ) | (3,050,000 | ) | ||
| Increase (decrease) in accounts payable and accrued liabilities | 2,510,429 | (468,362 | ) | |||
| Decrease in deferred lease liability | (6,137 | ) | (21,379 | ) | ||
| |
|
|||||
| Total adjustments | 4,224,083 | 1,564,689 | ||||
| |
||||||
| Net cash used in operating activities | (27,512,549 | ) | (19,703,404 | ) | ||
| |
|
|||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | (1,422,892 | ) | (925,025 | ) | ||
| Increase in restricted cash | (2,753 | ) | (399,891 | ) | ||
| Sales of marketable securities | 13,370,199 | 24,374,000 | ||||
| Purchase of marketable securities | (16,101,715 | ) | (2,951,695 | ) | ||
| |
|
|||||
| Net cash (used in) provided by investing activities | (4,157,161 | ) | 20,097,389 | |||
| |
|
|||||
| Cash flows from financing activities: | ||||||
| Proceeds
from the exercise of stock options and sale of common stock
under the Employee Stock Purchase Plan |
4,528,164 | 1,961,055 | ||||
| Increase in deferred offering costs | (252,807 | ) | ||||
| |
|
|||||
| Net cash provided by financing activities | 4,528,164 | 1,708,248 | ||||
| |
|
|||||
| Net (decrease) increase in cash and cash equivalents | (27,141,546 | ) | 2,102,233 | |||
| |
|
|||||
| Cash and cash equivalents at beginning of period | 47,737,467 | 9,446,982 | ||||
| |
|
|||||
| Cash and cash equivalents at end of period | $ | 20,595,921 | $ | 11,549,215 | ||
| |
|
|||||
| Supplemental disclosure of noncash items: | ||||||
| Deferred stock offering costs in accrued expenses: | $ | — | $ | 222,193 | ||
| Issuance of restricted stock | $ | 2,826,588 | $ | — | ||
The accompanying notes are an integral part of these condensed financial statements.
6
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 7).
The Company has been awarded government research grants and contracts from the National Institutes of Health (the “NIH”), an agency of the Department of Health and Human Services. The NIH grants and contracts are used to subsidize the Company’s research projects described below. 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 9 for additional information regarding the NIH contract.
7
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.
Interest income is recognized as earned.
For the three and nine months ended September 30, 2004 and 2003, the Company’s research grant and contract revenue and contract research and development revenue came from the NIH and the JV, 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 and in preclinical development. All costs associated with research and development are expensed as incurred.
For each clinical trial that the Company conducts, certain clinical trials costs, which are included in research and development expenses, are expensed based on the total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations provide services. 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. | Equity and Stock-Based Employee Compensation |
The accompanying statements of 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. Unearned compensation for restriced stock awards granted is recorded on the date of the grant based on the intrinsic value of such awards. Such unearned compensation recorded is expensed using a straightline method as the related restrictions on such stock lapse.
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 and restricted stock 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.
8
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
| Three
Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
| |
|
|||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||
| Net loss, as reported | $ | (10,635,955 | ) | $ | (7,322,347 | ) | $ | (31,736,632 | ) | $ | (21,268,093 | ) | ||
| Add: | Stock-based employee | |||||||||||||
| compensation expense | ||||||||||||||
| included in reported net loss | 233,530 | 69,863 | 233,530 | 69,863 | ||||||||||
| Deduct: | Total stock-based employee | |||||||||||||
| compensation expense | ||||||||||||||
| determined under fair value- | ||||||||||||||
| based method for all awards | (1,940,819 | ) | (4,273,700 | ) | (6,087,372 | ) | (8,447,406 | ) | ||||||
| |
|
|
|
|||||||||||
| Pro forma net loss | $ | (12,343,244 | ) | $ | (11,526,184 | ) | $ | (37,590,474 | ) | $ | (29,645,636 | ) | ||
| |
|
|
|
|||||||||||
| Net loss per share amounts, basic and diluted: | ||||||||||||||
| As reported | $ | (0.63 | ) | $ | (0.56 | ) | $ | (1.88 | ) | $ | (1.65 | ) | ||
| Pro forma | $ | (0.73 | ) | $ | (0.88 | ) | $ | (2.23 | ) | $ | (2.30 | ) | ||
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 75% in 2003, expected lives of five years, zero dividend yield, and weighted-average risk-free interest rate of 3.41% in 2004 and 2.48% in 2003.
The fair value of options 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 September 30, 2004 and December 31, 2003 consist of the following:
| September 30, | December 31, | |||||
| 2004 | 2003 | |||||
| Accounts payable | $ | 1,817,611 | $ | 1,300,104 | ||
| Accrued consulting and clinical trial costs | 3,823,851 | 2,883,366 | ||||
| Accrued payroll and related costs | 1,197,063 | 700,963 | ||||
| Professional fees payable | 796,164 | 133,526 | ||||
| Other | 18,582 | 26,500 | ||||
| |
|
|||||
| $ | 7,653,271 | $ | 5,044,459 | |||
| |
|
|||||
9
PROGENICS
PHARMACEUTICALS, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS – (Continued)
| 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 nine months ended September 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 September 30, 2004: | ||||||
| Basic and Diluted: | $ (10,635,955 | ) | 16,972,735 | $ (0.63 | ) | |