Note

Summary of Significant Accounting Policies

Business

Progenics Pharmaceuticals, Inc. and its subsidiaries (“the Company,” “Progenics,” “we” or “us”) is an oncology company focused on the development and commercialization of innovative targeted medicines and other technologies to target and treat cancer.

Highlights of our recent progress include:

●

AZEDRA

approval.

U.S. Food and Drug Administration (“FDA”) approved the New Drug Application (“NDA”) for AZEDRA (iobenguane I

131

)

555

MBq/mL injection for intravenous use. AZEDRA, a radiotherapeutic, is indicated 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. AZEDRA is the

first

and only approved therapy for this indication.

●

AZEDRA Launch.

AZEDRA was launched

August 1, 2018.

Since

August,

AZEDRA was added to the National Comprehensive Cancer Network

(“NCCN”) Clinical Practice Guidelines in Oncology for Neuroendocrine and Adrenal Tumors v

3.2018.

NCCN Guidelines

are widely recognized and used as the standard for clinical policy in oncology by clinicians and payors. Since AZEDRA’s approval by the FDA, it has also been added to

four

drug compendia: Clinical Pharmacology

; DRUGDEX

; Lexi-Drugs

; and NCCN. These compendia are recognized by private and public payers, including Centers for Medicare and Medicaid Services (“CMS”) as authoritative sources to be considered in determining drug reimbursement. 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.

●

Pipeline Advancement

●

We advanced our

1095

program and plan initiate a Phase

trial in early

2019.

1095

is a small molecule radiotherapeutic designed to selectively bind to the extracellular domain of prostate specific membrane antigen (“PSMA”). The multicenter, randomized, controlled trial will evaluate the efficacy and safety of

1095

in combination with enzalutamide in patients with metastatic castration-resistant prostate cancer (mCRPC) who are PSMA-avid, chemotherapy naïve, and progressed on abiraterone.

●

We reported topline results from our recently completed Phase

2/3

study of PyL which demonstrated its potential high clinical utility. These results were used to design the pivotal Phase

study planned to commence in the

fourth

quarter.

●

We reported topline results of our recently completed Phase

study in

1404.

The Phase

trial evaluated the specificity of

1404

imaging to identify patients without clinically significant prostate cancer and sensitivity to identify patients with clinically significant disease. Based on the

1404

data and an assessment of the PSMA-targeted imaging agent commercial landscape, we decided to focus our efforts on our PyL PSMA-targeted PET/CT imaging agent and will

not

further invest in

1404.

We consider opportunities for strategic collaborations, out-licenses, and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs. We

may

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

Strategic partnerships

●

RELISTOR

(methylnaltrexone bromide) is licensed to Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch Health Companies Inc. (formerly known as 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. We expect Bayer to initiate a Phase

study of PSMA TTC in patients with metastatic castration-resistant prostate cancer by year-end.

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, 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 operating segment, which includes development 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

September 30, 2018,

we had

$148.9

million of cash and cash equivalents, an increase of

$58.2

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

third

quarter of

2018,

we raised net proceeds of

$70.0

million in an underwritten public offering of

9.1

million shares of common stock at a public offering price of

$8.25

per share and an additional

$4.8

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

0.6

million shares of common stock at an average selling price of

$8.36

per share. (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

nine

months ended

September 30, 2017

has been re-casted to conform with the current period presentation under this new guidance.

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 on

January 1, 2018,

with a corresponding increase to accounts receivable. Subsequent to the adoption of the new standard, variable consideration related to the bonus payments are 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 account for arrangements that 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 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

and

nine

months ended

September 30, 2018:

	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Royalty income	$	5,169	$	11,757
Other revenue		148		627
Total revenue	$	5,317	$	12,384

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

$5.8

million and

$4.0

million as of

September 30, 2018

and

December 31, 2017,

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

September 30, 2018

and

December 31, 2017,

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 (“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

and

nine

months ended

September 30, 2018

2017.

Property and Equipment

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

$2.5

million and

$1.7

million as of

September 30, 2018

and

December 31, 2017,

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

	September 30,			December 31,
	2018			2017
Machinery and equipment	$	3,002		$	2,516
Leasehold improvements		1,734			1,734
Computer equipment		719			714
Furniture and fixtures		878			874
Construction in progress		97			-
Property and equipment, gross		6,430			5,838
Less - accumulated depreciation		(2,453	)		(1,716	)
Property and equipment, net	$	3,977		$	4,122