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 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

Recent

and Continued

Progress

●

October 2, 2019,

we announced the signing of a definitive agreement in which Lantheus Holdings, Inc. (“Lantheus”) will acquire Progenics in an all-stock transaction, offering a significant upside opportunity to the combined shareholders from a diversified, high growth portfolio with the potential for strong, growing profits. The combination of Lantheus and Progenics forms a leader in precision diagnostics and radiopharmaceutical therapeutics. The combined company is expected to have significant product and cost synergies that will diversify and sustain growing revenues and will drive incremental profitability and cash flow. The combined company will be led by Lantheus 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. Following the closing, Bradley Campbell, currently a member of Progenics’ Board of Directors, will be added as a member of the Board of Directors of Lantheus. The transaction is expected to close in the

first

quarter of

2020,

subject to approval by Lantheus and Progenics stockholders, regulatory approvals, and certain other customary closing conditions. See Part I, Item

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item

1A,

“Risk Factors,” and Note

of the Notes to Consolidated Financial Statements included in this report for additional information regarding the proposed transaction.

●

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. Third quarter sales of AZEDRA totaled

$0.6

million (

first

therapeutic doses for

three

new patients and a

second

therapeutic dose for

one

patient who previously received a

first

dose). The AZEDRA Managed Access program for appropriate commercial patients in need of the therapy outside the U.S. was initiated, which will provide access to AZEDRA.

●

Progenics recently received comments and is currently in discussions with the Food and Drug Administration (“FDA”) on its proposed life cycle management study to evaluate AZEDRA in patients with other neuroendocrine tumors (“NETs”). The proposed study is on clinical hold until we reach agreement with the FDA. Assuming we can reach agreement with the FDA on an amended study, or possibly studies design, we intend to commence them next year.

●

Patient enrollment for the Phase

CONDOR trial evaluating the diagnostic performance and clinical impact of PyL (

F-DCFPyL) was completed. The Phase

CONDOR trial is a multi-center, open label trial that dosed

208

patients with biochemical recurrence of prostate cancer at

sites in the U.S. and Canada. Top-line data is expected by year end.

●

Patient enrollment is ongoing in the Phase

trial of

1095

in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (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. Currently patients are being dosed at Canadian sites using drug produced by our contract manufacturing organization, CPDC. CPDC has

not

been allowed to ship drug to U.S. sites under an import alert. Following lifting of the import ban by FDA, Progenics will submit a request to utilize the CPDC drug at U.S. sites. We expect that review of our request will be completed by the end of

2019

and initiation of dosing at U.S. clinical sites is expected to begin in the

first

quarter of

2020.

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. In

May 2019,

Bayer dosed the

first

patient in the Phase

trial which triggered a

$2.0

million milestone payment, recorded as part of the license and other revenue.

●

Curium has exclusive rights to develop, manufacture and commercialize PyL (

F-DCFPyL) in Europe. Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of PyL in Europe, and Progenics is entitled to royalties on net sales of PyL. Curium is in discussions with European Medicines Agency (“EMA”) regarding the development path in Europe.

●

ROTOP has exclusive rights to develop, manufacture and commercialize

1404

in Europe. Under the terms of the collaboration, ROTOP is responsible for the development, regulatory approvals and commercialization of

1404

in Europe. Under this agreement, Progenics is entitled to double-digit, tiered royalties on future net sales of

1404

in Europe. ROTOP is in discussions with EMA regarding the development path in Europe.

●

FUJIFILM Toyama Chemical Co, Ltd. (“FUJIFILM”) had rights to the Company’s aBSI product in Japan for use under the name BONENAVI under a prior agreement. Under the terms of a recently signed transfer agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from us for their use of aBSI in Japan. In exchange, Progenics received a

$4.0

million upfront payment and is entitled to service fees for the next

three

years.

●

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

140

), which acquisition included a 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.

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, 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 Chief Executive Officer.

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

September 30, 2019

totaled

$666.5

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, 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.

September 30, 2019,

we had

$64.5

million of cash and cash equivalents, a decrease of

$73.2

million from

$137.7

million at

December 31, 2018.

October 2, 2019,

we announced a definitive agreement for Lantheus to acquire Progenics in an all-stock transaction. The combination of Lantheus and Progenics forms an innovative company with a diversified diagnostic and therapeutic portfolio. Consistent with regular practice for a growth-stage pharmaceutical or biotechnology company, and as we have successfully done in the past, we fully anticipate obtaining additional financing in order to meet our cash requirements if the Lantheus agreement 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 operating needs beyond

one

year from the date this quarterly report is issued. If adequate funds are

not

available, we

may

be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that

may

require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. If we are unable to obtain external financing, there is substantial doubt about 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, 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

and

nine

months ended

September 30, 2019

and

2018

(in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Product sales	$	570	$	-	$	840	$	-
Royalty income		4,912		5,169		12,666		11,757
License and other revenue		131		148		6,354		627
Total revenue	$	5,613	$	5,317	$	19,860	$	12,384

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.

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

$3.8

million as of

September 30, 2019

and

December 31, 2018,

respectively, primarily related to the royalty revenue and upfront and milestone payments under our partnerships, which are included in license and other revenue (see

Note

Accounts Receivable

Restricted Cash

Restricted cash included in long-term assets of

$3.3

million and

$1.5

million at

September 30, 2019

and

December 31, 2018,

respectively, represents collateral for a letter of credit securing a lease obligation (for both periods), 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 (for the

2019

period). 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

and

nine

months ended

September 30, 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 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

$3.5

million and

$2.7

million as of

September 30, 2019

and

December 31, 2018,

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

	September 30,			December 31,
	2019			2018
Machinery and equipment	$	4,030		$	2,992
Leasehold improvements		3,052			1,734
Computer equipment		655			721
Furniture and fixtures		908			878
Construction in progress		4,079			317
Property and equipment, gross		12,724			6,642
Less - accumulated depreciation		(3,470	)		(2,698	)
Property and equipment, net	$	9,254		$	3,944