Acquisition of Molecular Insight Pharmaceuticals, Inc

12 Months Ended

Dec. 31, 2013

Acquisition of Molecular Insight Pharmaceuticals, Inc [Abstract]

Acquisition of Molecular Insight Pharmaceuticals, Inc

2.  Acquisition of Molecular Insight Pharmaceuticals, Inc.

Molecular Insight's operations from January 18, 2013, the date we acquired this subsidiary which significantly expanded the Company's focus on PSMA as an oncology target while broadening the oncology pipeline, are included in the Consolidated Financial Statements. The acquisition consideration included 4,566,210 shares (500,000 of which were placed in an escrow expiring in April 2014) of Progenics common stock in a private transaction not taxable to Progenics. (The closing NASDAQ market price of Progenics' freely transferable common shares on January 18, 2013 was $2.83 per share.) Under the acquisition agreement, Progenics also agreed to pay to the stockholders potential milestones, in cash or Progenics stock at Progenics' option, of up to $23 million contingent upon achieving specified commercialization events and up to $70 million contingent upon achieving specified sales targets relating to all MIP products. Of the 500,000 placed in escrow,  shares have been returned to Progenics to date pursuant to financial adjustment provisions of the agreement.

The acquisition was accounted for using the acquisition method of accounting, under which assets and liabilities of the acquired entity are recorded at their respective fair values as of the acquisition date (estimated as described below) and added to those of the acquiring entity. The difference between the estimated fair value of the acquisition consideration paid and fair value of the identifiable net assets represents potential future economic benefits arising from combining Progenics and MIP, taking into account a deferred tax liability related to in process research and development (IPR&D) intangible assets, and has been recorded as goodwill. The results of operations of MIP's business, the estimated fair market values of the assets acquired and liabilities assumed, and goodwill are included in our consolidated financial statements since the date of the acquisition.

During the year ended December 31, 2013, the Company incurred $790 in transaction costs related to the acquisition, which primarily consisted of legal, accounting and valuation-related expenses and reduced additional paid-in capital in the first quarter of 2013 by $45 for acquisition-related equity issuance costs. The transaction costs were recorded in general and administrative expenses in the accompanying consolidated statements of operations. During the year ended December 31, 2013, MIP's business contributed $884 of revenues and $11,379 of net loss.

Purchase Price Allocation: We have accounted for the Molecular Insight acquisition by allocating our estimate of the fair market value of the consideration we paid to the fair values of the assets acquired and liabilities assumed at the effective date of the acquisition, estimated using the valuation models summarized below. Given the uniqueness of and uncertainties attendant to the assets and liabilities, the derived values do not reflect actual transactions or quoted prices. Acquired intangible assets, including goodwill, are not deductible for tax purposes.

	Amount
Consideration:
Progenics common stock consideration paid	$	11,265
Contingent consideration (pursuant to future milestone obligations)		15,900
Total consideration		27,165
Tangible assets acquired and liabilities assumed:
Cash and cash equivalents		1,888
Accounts receivable		56
Other current assets		529
Fixed assets		249
Accounts payable, accrued expenses and deferred revenue - current		(2,876	)
Deferred tax liability – long term		(12,683	)
Total tangible assets acquired and liabilities assumed		(12,837	)
Intangible assets – in process research and development		32,300
Total tangible and intangible assets acquired and liabilities assumed		19,463
Goodwill	$	7,702

Intangible assets and goodwill: In connection with the acquisition of Molecular Insight, in process research and development and goodwill are initially measured at estimated fair value and capitalized as an intangible asset. We perform an impairment test for these intangibles annually in the fourth quarter, unless impairment indicators require an earlier evaluation. Upon and subject to commercialization of the Company's product candidates, the IPR&D will be amortized over its estimated useful life.

We valued as intangible assets the in process research and development projects acquired as follows:

(i) 1404, an imaging agent in phase 2 development, at an estimated fair value of $23.2 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2017 and a 18% discount rate;

(ii) Azedra, a small molecule candidate for the treatment of pheochromocytoma and paraganglioma in phase 2b development, and for neuroblastoma in phase 2a development, at an estimated fair value of $4.9 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2017 and a 15% discount rate;

(iii) small molecule candidate MIP-1095, in preclinical development for the treatment of prostate cancer, at an estimated fair value of $2.7 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2021 and a 20% discount rate; and

(iv) Onalta, a drug candidate in phase 2 development for the treatment of metastatic carcinoid and pancreatic neuroendocrine tumors, at an estimated fair value of $1.5 million resulting from a probability adjusted discounted cash flow model which includes estimates of significant cash inflows beginning in 2014 and a 15% discount rate.

On the acquisition date, we recorded a contingent consideration liability at an estimated fair value of $15.9 million resulting from probability adjusted discounted cash flow and Monte Carlo simulation models which include estimates of significant milestone payments to former MIP stockholders under the acquisition agreement ranging from 2016 to 2022 and risk adjusted discount rates ranging from 10% to 12.5%.

Pro forma financial information (unaudited): The following unaudited pro forma information presents the results of operations of the combined companies for the periods indicated as if the acquisition had been consummated on January 1, 2012, combining the respective historical results of Progenics and MIP for each period. Non-recurring transaction expenses of $790, incurred in the year ended December 31, 2013, are reflected in the pro forma information as if these were incurred in the corresponding 2012 period, due to the pro forma assumption of January 1, 2012 as the date of the acquisition consummation.

	Three Months Ended December 31,						Year Ended December 31,
	2013			2012			2013			2012
Revenues	$	2,968		$	12,801		$	7,867		$	18,235
Net loss		(8,551	)		(3,458	)		(43,736	)		(57,877	)
Basic and diluted loss per share		(0.14	)		(0.08	)		(0.78	)		(1.48	)