Note

Summary of Significant Accounting Policies

Business

Progenics Pharmaceuticals, Inc. and its subsidiaries (“the Company,” “Progenics,” “we” or “us”) develop innovative medicines and other technologies to target and treat cancer. Our pipeline includes:

) therapeutic agents designed to precisely target cancer (AZEDRA

1095,

and PSMA TTC),

) PSMA-targeted imaging agents for prostate cancer (

1404

and PyL

), and

) imaging analysis technology.

We licensed our

first

commercial drug, RELISTOR

(methylnaltrexone bromide) subcutaneous injection for the treatment of opioid induced constipation (“OIC”), to Salix Pharmaceuticals, Inc. (a wholly-owned subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”)). RELISTOR received an expanded approval from the U.S. Food and Drug Administration (“FDA”) for the treatment of OIC in patients taking opioids for chronic non-cancer pain, and in

July 2016,

RELISTOR Tablets were approved by the FDA for the treatment of OIC in adults with chronic non-cancer pain.

October 31, 2017,

we completed the rolling submission of our NDA for AZEDRA. The FDA has accepted our NDA for review, granted our request for Priority Review, and set an initial action date of

April 30, 2018

under the Prescription Drug User Fee Act (“PDUFA”), which was extended in

March

three

months to

July 30, 2018.

We are developing AZEDRA as a treatment for patients with malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma, which are rare neuroendocrine tumors. There are currently

approved therapies in the U.S. for these ultra-rare diseases. While AZEDRA has received Breakthrough Therapy, Orphan Drug, and Fast Track designations from the FDA, there can be

assurance that our NDA will be approved.

We have in the past considered opportunities for strategic collaborations, out-licenses, and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and we continue to do so. We

may

in the future also in-license or acquire additional oncology compounds and/or programs.

Our current principal sources of revenue from operations are royalty, development and commercial milestones from Valeant and Bayer AG (“Bayer”). Royalty and further milestone payments from Valeant or Bayer depend on success in development and commercialization, which is dependent on many factors, such as Valeant 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, and related business activities. Certain of our intellectual property rights are held by wholly-owned subsidiaries. All of our U.S. operations are presently conducted at our headquarters in New York, and 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 research and development operating segment.

Liquidity

March 31, 2018,

we had

$83.4

million of cash and cash equivalents, a decrease of

$7.2

million from

$90.6

million at

December 31, 2017.

We expect that this amount will be sufficient to fund operations as currently anticipated beyond

one

year from the filing date of this 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.

During the

first

quarter of

2018,

we raised net proceeds of

$9.5

million in at-the-market transactions under a controlled equity offering sales agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”). (See

Note

10.

Stockholders’ Equity

for additional information).

Basis of Presentation

Our interim 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 interim 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, 2017.

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. Certain prior period amounts in our condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Reclassifications

January 1, 2018,

we adopted Accounting Standards Update (ASU)

No.

2016

(“ASU

2016

18”

Statement of Cash Flows (Topic

230

) –

Restricte

Cash

and ASU

No.

2016

(“ASU

2016

15”

Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments

. Accordingly, the condensed consolidated statement of cash flow for the

three

months ended

March 31, 2017

has been re-casted to conform with the current period presentation under this new guidance (refer to our condensed consolidated statements of cash flows included in this filing for a reconciliation of cash, cash equivalents and restricted cash).

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

May 2014,

the FASB issued ASU

2014

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

09”

or the “Topic

606”

). The standard provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance. We adopted ASU

2014

January 1, 2018,

using the modified retrospective method, for all contracts

not

completed as of the date of adoption. The adoption of ASU

2014

represents a change in accounting principle that will more closely align revenue recognition with the transfer of promised goods or services to the customer. We implemented internal controls in

2017

to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to revenue recognition on our financial statements to facilitate adoption on

January 1, 2018.

There were

significant changes to our internal control over financial reporting due to the adoption of the new standard.

Based on the evaluation of our current contracts, revenue recognition is consistent under ASC

605

Revenue Recognition

and ASC

606

Revenue from Contracts with Customers

, except for revenue from variable consideration bonus payments under our software licensing arrangements. The cumulative effect of applying ASU

2014

to all contracts that were

not

completed as of

January 1, 2018

was recorded as a post-adoption adjustment of approximately

$35

thousand to the opening balance of accumulated deficit, with a corresponding increase to accounts receivable. Subsequent to the adoption of the new standard, variable consideration related to the bonus payments will be estimated and recognized when it is probable that a significant reversal of revenue will

not

occur.

Under this new guidance, 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 determine whether arrangements are within the scope of this new guidance, 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 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 standalone selling prices, 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.

We identified the following revenue streams from contracts with customers as part of our assessment: (

) royalties, (

) licensing and software licensing arrangements, and (

) other revenue. The following table summarizes revenue from contracts with customers for the

three

months ended

March 31, 2018:

Royalty income	$	3,058
License revenue		130
Other revenue		1
Total revenue	$	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.

License 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 periods.

Other revenue

– represents revenue from product sales of research reagents, and is recognized upon shipment to the end customer, which is when control of the product is deemed to be transferred.

We had customer contract balances of

$3.5

million and

$4.0

million as of

March 31, 2018

and

December 31, 2017,

respectively, primarily related to the royalty revenue stream (see

Note

Accounts Receivable

Restricted Cash

Restricted cash included in current assets on our condensed consolidated balance sheets of

$2.4

million at

March 31, 2018,

represents funds restricted for the payment of interest and principal on the royalty-backed loan agreement (see

Note

Non-Recourse Long-Term Debt, Net

for additional information), and the restricted cash included in long-term assets of

$1.5

million at

March 31, 2018

and

December 31, 2017,

represents collateral for letter of credit securing a lease obligation. We believe the carrying value of these assets 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 (“AOCL”) 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, 2018

2017.

Property and Equipment

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

$1.9

million and

$1.7

million as of

March 31, 2018

and

December 31, 2017,

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

	March 31,			December 31,
	2018			2017
Machinery and equipment	$	2,516		$	2,516
Leasehold improvements		1,734			1,734
Computer equipment		711			714
Furniture and fixtures		879			874
Construction in progress		13			-
Property and equipment, gross		5,853			5,838
Less - accumulated depreciation		(1,948	)		(1,716	)
Property and equipment, net	$	3,905		$	4,122