Note

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 approval, launch and manufacturing of AZEDRA

. Our pipeline includes therapeutic agents designed to precisely target cancer (

1095

and PSMA TTC), as well as a prostate-specific membrane antigen (“PSMA”) targeted imaging agent for prostate cancer (PyL™).

Recent Progress

●

AZEDRA

Launch.

A field-based team of Nuclear Medicine Technologists, Sales Representatives, Medical Science Liaisons and Access Specialists have been in the field since approval assisting centers of excellence and payers in the preparation for utilizing and reimbursing AZEDRA. As a result of this effort, treatment requests have been received and sites are now ready to administer AZEDRA.

●

AZEDRA

Manufacturing.

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 our development stage radiopharmaceuticals, including

1095.

We also secured the long-term supply of iodine necessary for the production of both AZEDRA and

1095

and entered into an agreement with a contract manufacturing organization for additional capacity and supply of iodine products. 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.

Continued Progress Across Entire Pipeline:

●

We initiated a multicenter, randomized, controlled Phase

trial of

1095

to evaluate the efficacy and safety of

1095

in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC) and will begin enrolling patients within the quarter.

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.

●

Data from an ongoing investigator-initiated study of PyL in

130

men with biochemical recurrence of prostate cancer was published in

The Journal of Nuclear Medicine

. The study of PyL is being conducted by the University of British Columbia and British Columbia Cancer Agency. Physician post-scan assessments indicated that imaging results improved physician decision-making in

89.1%

of patients and changed management plans in

87.3%

of patients. The investigators concluded that PyL was “safe and sensitive for the localization of biochemical recurrence of prostate cancer.”

●

Stanford University presented data from its investigator-initiated prospective study of PyL in patients with biochemical recurrent prostate cancer at the American Urological Association (“AUA”) Annual Meeting. Results demonstrated PyL’s overall positivity rate in this cohort of

84%.

Data from the investigator-sponsored study showed PyL imaging has the potential to change clinical management in nearly

two

thirds of biochemically recurrent prostate cancer patients.

●

Enrollment continues in a pivotal multi-center, open label Phase

CONDOR trial evaluating the diagnostic performance and clinical impact of PyL in men with biochemical recurrence of prostate cancer. The primary endpoint is based on positive predictive value and will assess the correct localization rate (“CLR”). We expect enrollment to complete by year end

2019.

●

We presented the results of the Phase

2/3

OSPREY trial of PyL, the Company’s PSMA-targeted small molecule PET/CT imaging agent designed to visualize prostate cancer at the AUA Annual Meeting. The positive data from the OSPREY trial helped design the Company’s Phase

CONDOR trial of PyL that was initiated in

November 2018.

●

We continue to pursue our life cycle management plans for AZEDRA. In

February 2019,

an advisory board with Key Opinion Leaders (“KOLs”) concluded that there would likely be strong interest in using AZEDRA in multiple MIBG-avid tumors, including gastroenteropancreatic neuroendocrine tumors (“GEP-NETS”) and other neuroendocrine tumors (“NETS”). There was strong interest in a clinical study to research the use of AZEDRA in these indications since patients often have very high unmet needs for new treatments. The Company plans to meet with the U.S. Food and Drug Administration (“FDA”) in a life cycle management meeting to discuss a trial to support an expanded label in these tumors.

●

Using our PSMA-targeted imaging data from previous trials, we completed a prospectively planned retrospective analysis using our deep convolutional neural network algorithms (“PSMA AI”) to automatically assess the PSMA images. The reads with PSMA AI demonstrated a statistically significant improvement over manual assessment in terms of increased diagnostic accuracy, precision, speed, and reproducibility. The results from this analysis are expected to be presented at a scientific conference in

June 2019.

Corporate:

●

We enhanced our leadership team with the appointment of Asha Das, M.D. as Chief Medical Officer. Dr. Das most recently served as Tocagen’s Chief Medical Officer, where she led the development of the company’s cancer-selective gene therapy platform. Previous to that Dr. Das was at Genentech, where she worked in positions of increasing responsibility, initially as Associate Medical Director and ultimately as Group Medical Director and was responsible for leading activities related to the approval and launch of Avastin in recurrent glioblastoma, expansion into platinum-resistant ovarian cancer and metastatic cervical cancer as well as clinical activities related to TECENTRIQ

. Prior to moving to the pharmaceutical industry, Dr. Das was head of the neuro-oncology program at Cedars-Sinai Medical Center. Dr. Das is certified in neurology by the American Board of Psychiatry and Neurology and in the sub-specialty of neuro-oncology by the United Council for Neurologic Subspecialties and previously served as a clinical fellow in neuro-oncology at Massachusetts General Hospital. Dr. Das completed her residency in neurology at Cornell Medical Center and has held academic appointments at the University of California, Los Angeles; University of California, San Francisco; and National University of Singapore. Dr. Das obtained her medical degree and bachelor’s degree from Cornell University.

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

trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer.

●

CytoDyn Inc. (“CytoDyn”) acquired leronlimab (PRO

140

), which acquisition 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. CytoDyn announced in

March 2019

that it filed its

first

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. We understand from Curium that it plans to meet with the European Medicines Agency to agree upon the regulatory path forward for PyL in

2019.

Under this agreement, Progenics is entitled to royalties on net sales of PyL.

Our current principal sources of revenue from operations are royalty, 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

March 31, 2019,

we had

$109.6

million of cash and cash equivalents, a decrease of

$28.1

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

-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

-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

months ended

March 31, 2019

and

2018

(in thousands):

	Three Months Ended
	March 31,
Source	2019		2018
Royalty income	$	4,161	$	3,058
Other revenue		120		131
Total revenue	$	4,281	$	3,189

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.

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

$4.9

million and

$3.8

million as of

March 31, 2019

and

December 31, 2018,

respectively, primarily related to the royalty revenue stream (see

Note

Accounts Receivable

Restricted Cash

Restricted cash included in long-term assets of

$1.5

million at

March 31, 2019

and

December 31, 2018,

represents collateral for a letter of credit securing a lease obligation. 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

months ended

March 31, 2019

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 an amount 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 sheet. 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 capitalization threshold established for lease assets and liabilities.

Property and Equipment

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of

$2.8

million and

$2.7

million as of

March 31, 2019

and

December 31, 2018,

respectively. The following table summarizes our property and equipment (in thousands):

	March 31,			December 31,
	2019			2018
Machinery and equipment	$	3,887		$	2,992
Leasehold improvements		3,034			1,734
Computer equipment		621			721
Furniture and fixtures		878			878
Construction in progress		455			317
Property and equipment, gross		8,875			6,642
Less - accumulated depreciation		(2,813	)		(2,698	)
Property and equipment, net	$	6,062		$	3,944