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. Our recent progress includes the enrollment completion of our pivotal phase

trial for PyL™ and the positive topline results. Our pipeline includes therapeutic agents designed to precisely target cancer (AZEDRA

1095

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

1404

Our current principal sources of revenue are AZEDRA sales, royalties, and development and commercial milestones from strategic partnerships. Royalty and further milestone payments from Bausch or Bayer depend on success in development and commercialization of RELISTOR and our PSMA-TTC, respectively, which is dependent on many factors, such as Bausch or Bayer’s 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 and commercializing 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 Interim Chief Executive Officer.

Pending Merger with Lantheus Holdings, Inc.

February 20, 2020,

we announced the signing of an amended and restated agreement and plan of merger with Lantheus Holdings, Inc. (“Lantheus Holdings”) (the “Merger Agreement”). The Merger Agreement reflects the renegotiation of certain of the terms of our original agreement for the proposed merger entered into on

October 1, 2019.

The combined company would be led by Lantheus Holdings’ Chief Executive Officer, Mary Anne Heino. Ms. Heino will be supported by Chief Financial Officer, Robert J. Marshall Jr., and Chief Operations Officer, John Bolla. The Merger Agreement provides that, following the closing, Dr. Gérard Ber and Mr. Heinz Mäusli, currently members of Progenics’ Board of Directors (the “Board”), will be added as members of the Board of Directors of Lantheus Holdings. At the effective time of the merger, each share of Progenics common stock issued and outstanding immediately prior to such time (other than excluded shares and dissenting shares) will be converted into the right to receive (i)

0.31

of a share of Lantheus Holdings common stock (an increase from

0.2502

under the original agreement) and (ii)

one

non-transferrable contingent value right (a "CVR") per share of Progenics common stock, which will represent the right to receive up to

two

contingent payments upon the achievement of certain milestones subject to the terms of the Contingent Value Rights Agreement to be entered into between Lantheus Holdings and a rights agent reasonable acceptable to Progenics at or immediately prior to the effective time of the merger. In

event will Lantheus Holdings’ aggregate payments in respect of the CVRs, together with any other non-stock consideration treated as paid in connection with the proposed merger, exceed

19.9%

of the total consideration Lantheus Holdings pays in the proposed merger. As a result of the increase in the exchange ratio, following the completion of the proposed merger, former Progenics stockholders’ aggregate ownership stake will increase to approximately

40%

of the combined company from approximately

35%

under the terms set forth in the original agreement.

April 2, 2020,

Progenics and Lantheus Holdings announced their decision to reschedule their respective special meetings of stockholders to vote on the matters related to the proposed merger of Progenics and Lantheus Holdings from

April 28, 2020

June 16, 2020.

The rescheduling of the special meetings is intended to allow both companies the time necessary to respond to the novel coronavirus (COVID-

) global pandemic and its effect on each company’s business and on the combined company. The transaction is expected to close in the

second

quarter of

2020,

subject to approval by Lantheus Holdings and Progenics stockholders and certain other customary closing conditions.

April 14, 2020,

Progenics entered into an agreement with Velan Capital, L.P. (“Velan”), Altiva Management Inc., Balaji Venkataraman and Deepak Sarpangal (collectively, the “Velan Stockholders”), pursuant to which Progenics agreed to pay the Velan Stockholders

$1.3

million as partial reimbursement for their expenses incurred in connection with the Velan Stockholders’ involvement with Progenics, including the successful consent solicitation commenced on

September

18,

2019

to reconstitute the board of directors of Progenics. The reimbursement will be in full satisfaction of the Velan Stockholders’ claims with respect to such expenses and will be paid promptly following the adoption of the Merger Agreement by the stockholders of Progenics and the approval of the stock issuance pursuant to the Merger Agreement by the stockholders of Lantheus Holdings.

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In addition, on

April 14, 2020,

Progenics and Lantheus Holdings announced the entry by Lantheus Holdings into a Support Agreement (the “Support Agreement”) with Velan in connection with the proposed merger of Progenics and Lantheus Holdings, providing that Velan will vote all of its Progenics common stock and Lantheus Holdings common stock in favor of the proposed merger of Lantheus Holdings and Progenics on the terms set forth in the Merger Agreement, and that Velan will abide by certain customary standstill provisions, in each case, subject to the terms and conditions set forth in the Support Agreement.

AZEDRA

AZEDRA is the

first

and only approved therapy in the U.S. for the treatment of adult and pediatric patients

years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy.

First quarter sales of AZEDRA totaled approximately

$1.4

million for the quarter ended

March 31, 2020.

Sales of therapeutic doses of AZEDRA doubled over the preceding quarter. Progenics is continuing to receive and process requests for both dosimetry and therapeutic doses. However, in alignment with government, regulatory and public health recommendations in relation to the COVID-

pandemic, many of the multidisciplinary treatment centers that serve pheochromocytoma or paraganglioma patients have banned, or have limited access to external visitors, including the field-based sales team for AZEDRA, to ensure the safety of patients and healthcare providers. Consequently, the Company expects corresponding product revenue to reflect the challenging environment associated with the COVID-

pandemic until restrictions are lifted. As a result, the Company has decided to curtail promotional spending and furlough a portion of the field-based AZEDRA commercial operations and medical employees to support cost-saving measures as the Company continues to navigate through the changing COVID-

environment. Progenics continues to assess this emerging situation and will make any relevant adjustments in alignment with government mandates when necessary.

PyL

We recently completed

two

successful pre-New Drug Application (“NDA”) meetings with the U.S. Food and Drug Administration (‘FDA’) and remain on track to complete a submission early in the

third

quarter of

2020.

Based on prior discussions with the FDA, we believe that the data from the CONDOR study and the OSPREY study can serve as a basis for an NDA for PyL.

Several abstracts pertaining to PyL were recently published in the Journal of Urology, including the results of the Phase

CONDOR study in patients with biochemical recurrent prostate cancer. The CONDOR trial achieved its primary endpoint, with a correct localization rate (CLR) of

84.8%

87.0%

among the

three

blinded independent readers (the lower bound of the

95%

confidence intervals ranging from

77.8%

80.4%

). The results of additional investigator-sponsored studies of PyL conducted in post-prostatectomy patients and metastatic clear cell renal cell carcinoma were also published in the journal.

1095

Following the removal of the import alert on Centre for Probe Development & Commercialization (CPDC), we have initiated

eleven

clinical sites in the U.S along with the

six

active sites in Canada to support enrollment in the Company’s multicenter, randomized, controlled, ARROW Phase

study in mCRPC.

Progenics’1095

is a small molecule radiotherapeutic designed to selectively bind to the extracellular domain of PSMA, a protein that is highly expressed on prostate cancer cells. As the clinical community is facing challenges in trial conduct due to the COVID-

pandemic, we are committed to ensuring adequate safety monitoring of ARROW subjects and maintaining the integrity of the trial in alignment with government, regulatory and public health recommendations. As such, Progenics has paused new enrollment for several months in the Phase

trial of I-

131

1095

(

1095

) in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC) to minimize the risk to patients and healthcare providers during the pandemic. For patients who are active and have been randomized for the study, they will continue to receive treatment doses and will be monitored for safety and efficacy in a manner that is permissible by each clinical site. As a result, the Company has decided to furlough a portion of the clinical employees to support cost-saving measures as the Company continues to navigate through the changing COVID-

environment. Progenics continues to assess this emerging situation and will make any relevant adjustments in alignment with government mandates when necessary.

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Liquidity

The Company is

not

profitable and there is

assurance that we will ever achieve and sustain profitability on a continuing basis. In addition, development activities, clinical testing, and commercialization of the Company’s product candidates will require additional financing. The Company’s accumulated deficit at

March 31, 2020

totaled

$694.6

million, and management expects to incur substantial losses in future periods. The success of the Company is subject to certain risks and uncertainties, including among others, uncertainties associated with the proposed merger with Lantheus Holdings; uncertainty of the impact of the coronavirus (COVID-

) pandemic; uncertainty of product development and commercialization; uncertainty of capital availability; uncertainty in the Company’s ability to enter into agreements with collaborative partners; dependence on

third

parties; and dependence on key personnel.

March 31, 2020,

we had

$29.5

million of cash and cash equivalents, a decrease of

$12.5

million from

$42.0

million at

December 31, 2019.

February 20, 2020,

we announced the signing of the Merger Agreement. Additionally, on

March 15, 2020,

Progenics as borrower, and Lantheus Medical Imaging, Inc. (“Lantheus Medical Imaging”), a subsidiary of Lantheus Holdings, as lender, entered into a bridge loan agreement, pursuant to which Lantheus Medical Imaging agreed to provide for a secured short-term loan to the Company on or after

May 1, 2020

in an aggregate principal amount of up to

$10

million (the “Bridge Loan Agreement”). The bridge loan matures on the earlier to occur of (a)

September 30, 2020

and (b) the date on which the Company enters into a debt financing or similar arrangements or any amendment to, or replacement of, its existing debt, provided by

one

or more

third

parties following the termination date of the Merger Agreement, in either case, having aggregate net cash proceeds that exceed the amount then required to repay all obligations under the Bridge Loan Agreement in full in cash. The bridge loan bears interest at a rate per annum of

9.5%

and is secured through the pledge to Lantheus Medical Imaging of all of the issued and outstanding shares of capital stock of Molecular Insight Pharmaceuticals, Inc., a subsidiary of Progenics (“MIP”), and any debt of MIP owed to Progenics. Progenics will use the proceeds of the bridge loan for working capital and other general corporate purposes.

Consistent with regular practice for a growth-stage pharmaceutical or biotechnology company, and as we have done in the past, we anticipate the need, and are exploring options for, additional financing in order to meet our cash requirements if the proposed merger with Lantheus Holdings is

not

ultimately consummated. However, there can be

assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our current operating expenses or reduced operating expenses reflecting delays or reductions in the scope of our product development programs beyond

one

year from the date this annual report is issued. As such, we believe there is substantial doubt regarding our ability to continue as a going concern within

one

year after the date this Quarterly Report on Form

-Q is filed with the SEC. The financial statements do

not

include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.

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, 2019.

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.

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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, 2020

and

2019

(in thousands):

	Three months ended March 31,
	2020		2019
Product sales	$	1,359	$	-
Royalty income		4,789		4,161
License and other revenue		100		120
Total revenue	$	6,248	$	4,281

roduct sales

– represent revenue from sales of AZEDRA directly to hospitals. Our performance obligations are to provide AZEDRA based on sales orders from hospitals, which have been verified by our commercial team as properly credentialed to receive, handle, administer and dispose of radioactive materials. We recognize revenue after the customer takes title and has obtained control of the product. Our contracts with hospitals stipulate that product is shipped free on-board destination. We invoice hospitals after the products have been delivered and invoice payments are generally due within

days of invoice date. We record sales to hospitals based on AZEDRA’s list price per mCi and the amount prescribed based upon a dosimetric assessment of each patient. We record product sales net of any variable consideration due to rebates and discounts provided under governmental and other programs, and other sales-related deductions, such as product returns and copay assistance programs. Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.

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.

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License and o

ther revenue

– represent 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

$6.2

million and

$16.0

million as of

March 31, 2020

and

December 31, 2019,

respectively, primarily related to the royalty revenue stream and milestone payment receivable as of

December 31, 2019

under our partnership with Bausch Health Companies, Inc. (“Bausch”) (see

Note

Accounts Receivable

Restricted Cash

Restricted cash included in long-term assets of

$2.7

million and

$3.0

million at

March 31, 2020

and

December 31, 2019,

respectively, represents collateral for a letter of credit securing a lease obligation, collateral for a letter of credit related to equipment purchases and a security deposit with the German District Court related to the PSMA-

617

litigation. 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, 2020

2019.

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 amounts 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 sheets. 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 established capitalization threshold.

Property and Equipment

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

$4.3

million and

$3.8

million as of

March 31, 2020

and

December 31, 2019,

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

	March 31,			December 31,
	2020			2019
Machinery and equipment	$	6,809		$	5,204
Leasehold improvements		3,621			3,204
Computer equipment		710			691
Furniture and fixtures		908			908
Construction in progress		6,884			5,475
Property and equipment, gross		18,932			15,482
Less - accumulated depreciation		(4,259	)		(3,794	)
Property and equipment, net	$	14,673		$	11,688

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