Note

Fair Value Measurements

To estimate the fair values of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into

three

levels based on the source of inputs as follows:

●	Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access

●	Level 2 – Valuations for which all significant inputs are observable, either directly or indirectly, other than Level 1 inputs

●	Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value

may

fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

We believe the carrying amounts of our cash equivalents, accounts receivable, other current assets, other assets, accounts payable and accrued expenses approximated their fair values as of

June 30, 2017

and

December 31, 2016.

We record the contingent consideration liability resulting from our acquisition of Molecular Insight Pharmaceuticals, Inc. (“MIP”) at fair value in accordance with Accounting Standards Codification (“ASC”)

820

(Topic

820,

Fair Value Measurement

The following tables summarize each major class of our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy (in thousands):

			Fair Value Measurements at June 30, 2017
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Balance at		Identical Assets		Inputs		Inputs
	June 30, 2017		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	108,859	$	108,859	$	-	$	-
Total assets	$	108,859	$	108,859	$	-	$	-

Liabilities:
Contingent consideration liability	$	16,800	$	-	$	-	$	16,800
Total liabilities	$	16,800	$	-	$	-	$	16,800

			Fair Value Measurements at December 31, 2016
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Balance at		Identical Assets		Inputs		Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	137,340	$	137,340	$	-	$	-
Total assets	$	137,340	$	137,340	$	-	$	-

Liabilities:
Contingent consideration liability	$	14,200	$	-	$	-	$	14,200
Total liabilities	$	14,200	$	-	$	-	$	14,200

The contingent consideration liability of

$16.8

million as of

June 30, 2017

represents the estimated fair value of the future potential milestone payments to former MIP stockholders (shown in the tables below).

Milestone payments due upon

first

commercial sale (in thousands):

Program	Consideration		Form of Payment at Progenics' Option
AZEDRA	$	8,000	Cash or Progenics common stock
1404		10,000	Cash or Progenics common stock
1095		5,000	Cash or Progenics common stock
	$	23,000

Net sales milestone payments due upon

first

achievement of specified net sales target in any single calendar year across all MIP-related programs (in thousands):

Calendar Year Net Sales Level	Consideration		Form of Payment at Progenics' Option
$30 million	$	5,000	Cash or Progenics common stock
$60 million		5,000	Cash or Progenics common stock
$100 million		10,000	Cash or Progenics common stock
$250 million		20,000	Cash or Progenics common stock
$500 million		30,000	Cash or Progenics common stock
	$	70,000

We consider this liability a Level

instrument (

one

with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success and discount rates.

Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively. We record the contingent consideration liability at fair value with changes in estimated fair values recorded in change in contingent consideration liability in our condensed consolidated statements of operations.

The following table summarizes quantitative information and assumptions pertaining to the fair value measurement of the Level

inputs at

June 30, 2017

and

December 31, 2016 (

in thousands). The increase in the contingent consideration liability of

$2.6

million during the

six

months ended

June 30, 2017

was primarily attributable to the higher probability of success of AZEDRA used to calculate the potential milestone payments to former Molecular Insight Pharmaceuticals, Inc. stockholders and a reduction in the discount period.

	Fair Value at
	June 30,
	2017		Valuation Technique	Unobservable Input	Assumption
Contingent Consideration Liability:
AZEDRA commercialization	$	5,300	Probability adjusted discounted	Probability of success			72%
			cash flow model	Period of expected milestone achievement			2018
				Discount rate			10%
1404 commercialization		4,900	Probability adjusted discounted	Probability of success			59%
			cash flow model	Period of expected milestone achievement			2019
				Discount rate			10%
1095 commercialization		400	Probability adjusted discounted	Probability of success			16%
			cash flow model	Period of expected milestone achievement			2024
				Discount rate			10%
Net sales targets		6,200	Monte-Carlo simulation	Probability of success		16%	-	72%
				Discount rate			10%
Total	$	16,800

	Fair Value at
	December 31,
	2016		Valuation Technique	Unobservable Input	Assumption
Contingent Consideration Liability:
AZEDRA commercialization	$	3,800	Probability adjusted discounted	Probability of success			54%
			cash flow model	Period of expected milestone achievement			2018
				Discount rate			10%
1404 commercialization		4,700	Probability adjusted discounted	Probability of success			59%
			cash flow model	Period of expected milestone achievement			2019
				Discount rate			10%
1095 commercialization		400	Probability adjusted discounted	Probability of success			16%
			cash flow model	Period of expected milestone achievement			2024
				Discount rate			10%
Net sales targets		5,300	Monte-Carlo simulation	Probability of success		16%	-	59%
				Discount rate			10%
Total	$	14,200

For those financial instruments with significant Level

inputs, the following tables summarize the activities for the periods indicated:

	Liability - Contingent Consideration
	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Balance at beginning of period	$	16,100	$	19,000	$	14,200	$	18,800
Fair value change included in net loss		700		600		2,600		800
Balance at end of period	$	16,800	$	19,600	$	16,800	$	19,600

Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	700	$	600	$	2,600	$	800