Note 4 - Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4

.

Fair Value Measurements

We record the contingent consideration liability resulting from our acquisition of MIP at fair value in accordance with ASC

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 December 31, 2019
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Balance at		Identical Assets		Inputs		Inputs
	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	35,775	$	35,775	$	-	$	-
Total assets	$	35,775	$	35,775	$	-	$	-
Liabilities:
Contingent consideration liability	$	3,900	$	-	$	-	$	3,900
Total liabilities	$	3,900	$	-	$	-	$	3,900

			Fair Value Measurements at December 31, 2018
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Balance at		Identical Assets		Inputs		Inputs
	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	136,052	$	136,052	$	-	$	-
Total assets	$	136,052	$	136,052	$	-	$	-
Liabilities:
Contingent consideration liability	$	11,000	$	-	$	-	$	11,000
Total liabilities	$	11,000	$	-	$	-	$	11,000

The contingent consideration liability of

$3.9

million and

$11.0

million at

December 31, 2019

and

2018,

respectively, 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 and/or from proceeds received from license revenue (in thousands):

Program	Consideration		Form of Payment
1095		5,000	Cash or Progenics common stock
1404		9,984	Cash or Progenics common stock or cash in the case of license revenue
	$	14,984

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):

	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

3

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.

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 consolidated statements of operations.

The following tables summarize quantitative information and assumptions pertaining to the fair value measurement of the Level

3

inputs at

December 31, 2019

and

2018

(in thousands). The

2019

decrease in the contingent consideration liability of

$7.1

million was primarily attributable to the

$8.0

million payment for the AZEDRA

first

commercial sale milestone, which was partially offset by an increase in the AZEDRA sales forecasts associated with a study to expand the label for AZEDRA and a decrease in the discount period used to calculate the present value of the contingent consideration liability. The

2018

decrease in the contingent consideration liability of

$5.8

million was primarily attributable to a decrease in the sales projections and probability of success for

1404,

following results from the Phase

3

trial, whereby only

one

of the co-primary endpoints was met, partially offset by higher estimated probability of success of AZEDRA and a decrease in the discount period used to calculate the present value of the contingent consideration liability.

	Fair Value at
	December 31,
	2019		Valuation Technique	Unobservable Input	Assumption
Contingent Consideration Liability:
1095 commercialization	$	500	Probability adjusted discounted	Probability of success		18%
			cash flow model	Period of expected milestone achievement		2026
				Discount rate		10%
1404 commercialization		300	Probability adjusted discounted	Probability of success		43%
			cash flow model	Period of expected milestone achievement	2022	-	2035
				Discount rate		10
Net sales targets		3,100	Monte-Carlo simulation	Probability of success	18%	-	90%
				Discount rate		10
Total	$	3,900

	Fair Value at
	December 31,
	2018		Valuation Technique	Unobservable Input	Assumption
Contingent Consideration Liability:
AZEDRA commercialization	$	7,050	Probability adjusted discounted	Probability of success		90%
			cash flow model	Period of expected milestone achievement		2019
				Discount rate		10%
1095 commercialization		450	Probability adjusted discounted	Probability of success		18%
			cash flow model	Period of expected milestone achievement		2026
				Discount rate		10%
Net sales targets		3,500	Monte-Carlo simulation	Probability of success	18%	-	90%
				Discount rate		10%
Total	$	11,000

For those financial instruments with significant Level

3

inputs, the following table summarizes the activities for the periods indicated (in thousands):

	Liability - Contingent Consideration
	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
	2019			2018
Balance at beginning of period	$	11,000		$	16,800
Fair value change included in net loss		916			(5,800	)
Payments		(8,016	)		-
Balance at end of period	$	3,900		$	11,000
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	$	916		$	(5,800	)