Our and/NDA filing for AZEDRA has been accepted, but approval may be delayed, conditioned,or denied by the FDA.

Approval of a product candidate as safe and effective for use in humans is never certain. There remains significant uncertainty that AZEDRA will eventually receive regulatory approval. Additional testing results or adverse market conditions may cause us to withdraw the NDA in a timely manner. In addition, data obtained from clinical trials are susceptible to varying interpretations, and the FDA may not agree with our collaborators’interpretation of our AZEDRA clinical trial results. The FDA has substantial discretion in the approval process and may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. Further, the FDA may not meet, or may extend, the PDUFA date with respect to our AZEDRA NDA, which may delay the start of any AZEDRA commercialization effort.

Any AZEDRA commercialization program would expose us to significant risk.

It is very difficult to estimate the commercial potential of product candidates, due to factors such as safety and efficacy compared to other available treatments (including potential generic drug alternatives with similar efficacy profiles), changing standards of care, third party payer reimbursement, patient and physician preferences and the availability of competitive alternatives that may emerge either during the approval process or after commercial introduction. Frequently, products that have shown promising results in clinical trials suffer significant setbacks even after they are approved for commercial sale.

Even if approved, there is no guarantee that AZEDRA will be a commercial success. Future uses of AZEDRA commercially may reveal that AZEDRA is ineffective, unacceptably toxic, has other undesirable side effects, is difficult to manufacture on a large scale, is not cost-effective or economically viable, infringes on proprietary rights of another party or is otherwise not fit for further use.

AZEDRA, designated as an Orphan Drug is intended to treat a rare disease with a small patient population. If pricing for AZEDRA is not approved or accepted in the market at an appropriate level it may not generate enough revenue to make it economically viable. Based upon the complication of delivery and high costs associated with the development of radiopharmaceuticals, among other factors, we expect that the price of AZEDRA will be high. There have been recent examples of the market reacting poorly to the high cost of certain drugs. If the market reacts similarly to AZEDRA, it could result in negative publicity and reputational harm to us. Further, the Trump administration has indicated support for possible new measures related to drug pricing, which could increase the pricing pressures related to AZEDRA and further limit its economic viability.

Additionally, we have little experience as a company in commercializing products. Given this lack of experience, there is a heightened risk that we are able to adequately commercialize AZEDRA. If AZEDRA is determined to be unsafe or ineffective in humans, not economically viable or we are unable to successfully commercialize it, our business will be materially adversely affected.

Our relationships with customers and third-party payers are or may become subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us or them to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.

Health care providers, physicians and third-party payers play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our or our collaborators' future arrangements with third-party payers and customers will or already do require us and them to comply with broadly applicable fraud and abuse and other health care laws and regulations, including both federal and state anti-kickback and false claims laws, that may constrain the business or financial arrangements and relationships through which we or our collaborators market, sell and distribute our products that obtain marketing approval. Efforts to ensure that business arrangements comply with applicable health care laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our or our collaborators' business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If such operations are found to be in violation of any of these laws or other applicable governmental regulations, we or the collaborator may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of related operations. If physicians or other providers or entities involved with our products are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which may adversely affect us.

If we or our collaboratorspartners are unable to obtain sufficient quantities of the raw and bulk materials needed to make our products or product candidates, or RELISTOR, development of our products or product candidates or commercialization of our approved productproducts could be slowed or stopped.

ValeantWe or our partners may not be able to obtain the materials necessary to make a particular product or product candidate in adequate volume and quality. If any materials needed to make a product or product candidate is insufficient in quantity or quality, if a supplier fails to deliver in a timely fashion or at all or if these relationships terminate, we or our partners may not be able to fulfill manufacturing obligations for RELISTOR, a key raw material for which grows in Tasmania,our products or product candidates, either on theirour own or through third-party suppliers. A delay or disruption of supplies of RELISTORour products or product candidates would have a material adverse effect on the RELISTOR franchise, and therefore on our business as a whole. Our existing arrangements with suppliers for our other product candidates may result in the supply of insufficient quantities of our product candidates needed to accomplish our clinical development programs or commercialization, and we may not have the right and in any event, do not currently have the capability to manufacture these products if our suppliers are unable or unwilling to do so. We currently arrange for supplies of critical raw materials used in production of our product candidates from single sources. We do not have long-term contracts with any of these suppliers. Any delay or disruption in the availability of raw materials would slow or stop product development and commercialization of the relevant product.

Manufacturing resources could limit or adversely affect our ability to commercialize products.

We or our collaboratorspartners may engage third parties to manufacture our approved product and product candidates. We or our collaboratorspartners may not be able to obtain adequate supplies from third-party manufacturers in a timely fashion for development or commercialization purposes, and commercial quantities of products may not be available from contract manufacturers at acceptable costs. Under our license agreement with Valeant, Valeant is responsible for obtaining supplies of RELISTOR, including contracting with contract manufacturing organizations for supply of RELISTOR active pharmaceutical ingredient and subcutaneous and oral finished drug product. These arrangements may not be on terms that are advantageous and, as a result of our royalty and other interests in RELISTOR’s commercial success, will subject us to risks that the counterparties may not perform optimally in terms of quality or reliability. In engaging third parties for these activities, we do not control many aspects of the manufacturing process, including compliance with current cGMP and other regulatory requirements.

In order to commercialize our product candidates successfully, we or our collaborators need to be able to manufacture or arrange for the manufacture of products in commercial quantities, in compliance with regulatory requirements, at acceptable costs and in a timely manner. Manufacture of our product candidates, can be complex, difficult to accomplish even in small quantities, difficult to scale-up for large-scale production and subject to delays, inefficiencies and low yields of quality products. The manufacture of radiopharmaceuticals is relatively complex and requires significant capital expenditures. We rely on contract manufacturing organizations to manufacture active pharmaceutical ingredient and finished drug products for clinical trial supplies and for commercial supply of AZEDRA. The cost of manufacturing some of our product candidates may make them prohibitively expensive. If adequate supplies of any of our product candidates or related materials are not available on a timely basis or at all, our clinical trials or commercialization of our product candidates could be seriously delayed, since these materials are time consuming to manufacture and cannot be readily obtained from third-party sources. We continue to be dependent on a limited number of highly specialized manufacturing and development partners, including single source manufacturers for certain of our product candidates. If we were to lose one or more of these key relationships, it could materially adversely affect our business. Establishing new manufacturing relationships, or creating our own manufacturing capability, would require significant time, capital and management effort, and the transfer of product-related technology and know-how from one manufacturer to another is an inherently complex and uncertain process.

Failure of any manufacturer of RELISTOR or our various product candidates to comply with applicable regulatory requirements could subject us to penalties and have a material adverse effect on supplies of our product or products candidates.

Third-party manufacturers are required to comply with cGMP or similar regulatory requirements outside of the U.S. If manufacturers of our product or product candidates cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they may not be able to supply us with our product or product candidates. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays of several years in obtaining approval for a product candidate. We do not control the manufacturing operations and are completely dependent on our third-party manufacturing partners or contractors for compliance with the applicable regulatory requirements for the manufacture of RELISTOR andsome of our product candidates. Manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMP and similar regulatory requirements. Failure of any manufacturer of RELISTOR or any of our product candidates to comply with applicable cGMP or other regulatory requirements could result in sanctions being imposed on our collaborators or us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of RELISTOR or suchour product candidatecandidates and have a material adverse impact on our business, financial condition and results of operations.

The validity, enforceability and commercial value of our patents and other intellectual property rights are highly uncertain.

We own or have direct or sub-licenses tolicense a number of issued patents. We must obtain, maintain and enforce patent and other rights to protect our intellectual property. The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There are many laws, regulations and judicial decisions that dictate and otherwise influence the manner in which patent applications are filed and prosecuted and in which patents are granted and enforced, all of which are subject to change from time to time. There is no clear policy involving the breadth of claims allowed, or the degree of protection afforded, under patents in this area. In addition, we are aware of others who have patent applications or patents containing claims similar to or overlapping those in our patents and patent applications. Accordingly, patent applications owned by or licensed to us may not result in patents being issued. Even if we own or license a relevant issued patent, we may not be able to preclude competitors from commercializing drugs that may compete directly with one or more of our products or product candidates, in which event such rights may not provide us with any meaningful competitive advantage. In the absence or upon successful challenge of patent protection, drugs may be subject to generic competition, which could adversely affect pricing and sales volumes of the affected products.

It is generally difficult to determine the relative strength or scope of a biotechnology or pharmaceutical patent position in absolute terms at any given time. The issuance of a patent is not conclusive as to its validity or enforceability, which can be challenged in litigation or via administrative proceedings. The license agreements from which we derive or out-license intellectual property provide for various royalty, milestone and other payment, commercialization, sublicensing, patent prosecution and enforcement, insurance, indemnification and other obligations and rights, and are subject to certain reservations of rights. While we generally have the right to defend and enforce patents licensed to or by us, either in the first instance or if the licensor or licensee chooses not to do so, we must usually bear the cost of doing so. Under our license agreement with Valeant, Valeant generally has the first right to control the defense and enforcement of our RELISTOR patents. We may incur substantial costs in seeking to uphold the validity of patents or to prevent infringement. If the outcome of a dispute or contest is adverse to us, third parties may be able to use our patented invention without payment to us. Third parties may also avoid our patents through design innovation.

Patents have a limited life and expire by law.

In addition to uncertainties as to scope, validity, enforceability and changes in law, patents by law have limited lives. Upon expiration of patent protection, our drug candidates and/or products may be subject to generic competition, which could adversely affect pricing and sales volumes of the affected products.

The original patents surrounding the AZEDRA program were licensed by Molecular Insight from the University of Western Ontario (“UWO”). The patent family directed to processes for making polymer precursors, as well as processes for making the final product, expire in 2018 in the U.S. and Canada. Other licensed patent families from UWO relate to alternative approaches for preparing AZEDRA, which if implemented would expire in 2024, worldwide. Progenics has pending applications worldwide directed to manufacturing improvements and the resulting compositions which, if issued, would expire in 2035.

Owned and in-licensed propertiespatents relating to the 1404 product candidate have expiration ranges of 2020 to 2029; we view as most significant the composition-of-matter patent on the compound, as well as technetium-99 labeled forms, which expires in 2029 worldwide. Patent applications directed to methods of use are pending worldwide, which if issued would expire in 2034.

Patent protection for thecomposition-of-matter patent on PyL compound, radiolabeled form of the compound, as well as methods of use expire in 2030 in the United States. Corresponding patent family members are pending or issued worldwide, all with expirations of 2029.

Company-owned propertiespatents relating to MIP-1095 have expiration ranges of 2027 to 2031 in the U.S. We view as most significant the composition-of-matter patent on this compound, as well as radiolabeled forms, which expires in 2027 in the U.S., as well as Europe. Additional U.S. patents are directed to stable compositions and radiolabeling processes which expire in 2030 and 2031, respectively.

We own propertiespatents relating to automated detection of bone cancer metastases through our acquisition of EXINI.through. The patents on this technology expire in 2028.

With respect to PSMA antibody-drug conjugate,antibody, currently issued composition-of-matter patents comprising co-owned and in-licensed propertiespatents have expiration ranges of 2022 to 2023 in the U.S. and a pending U.S. application which would expire in 2026, if issued. A U.S. patent directed to methods of use expires in 2031. Corresponding foreign counterparts to the U.S. composition-of-mattercounterpart patents will expire 2022 and 2026, along with a method of use patent which expires in 2029.2022. We view all of these patents as significant.

With regard to our RELISTOR-related intellectual property, the composition-of-matter patent for the active ingredient

.

We depend on intellectual property licensed from third parties and unpatented technology, trade secrets and confidential information. If we lose any of these rights, including by failing to achieveachieve milestone requirements or to satisfy other conditions, or if they or data embodying or relevant to them are compromised by disruptions or breaches of information or data security, our business, results of operations and financial condition could be harmed.

Most of our product candidates including RELISTOR, incorporate intellectual property licensed from third parties. For example, PyL utilizes technology licensed to us from Johns Hopkins University. We could lose the right to patents and other intellectual property licensed to us if the related license agreement is terminated due to a breach by us or otherwise. Our ability and that of our collaboration partners, to commercialize products incorporating licensed intellectual property would be impaired if the related license agreements were terminated. In addition, we are required to make substantial cash payments, achieve milestones and satisfy other conditions, including filing for and obtaining marketing approvals and introducing products, to maintain rights under our intellectual property licenses. Due to the nature of these agreements and the uncertainties of research and development, we may not be able to achieve milestones or satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses. If we do not comply with our license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore being unable to commercialize, related products.

We also rely on unpatented technology, trade secrets and confidential information. Third parties may independently develop substantially equivalent information and techniques or otherwise gain access to our technology or disclose our technology, and we may be unable to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. These agreements may, however, not provide effective protection in the event of unauthorized use or disclosure of confidential information. Any loss of trade secret protection or other unpatented technology rights could harm our business, results of operations and financial condition.

Progenics and other businesses and organizations worldwide, and in particular technology-intensive activities such as biotechnology research and development, are increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to facilitate or perform basic research and development functions, business processes, internal and external communications, and other critical functions. Progenics relies on such systems for most aspects of its business. The size and complexity of computer, communications and other electronic networked data generation, storage and transfer systems make them potentially vulnerable to breakdown, malicious intrusion, computer viruses and data security breaches by unauthorized third parties, employees or others. Such events may permit unauthorized persons to access, misappropriate and/or destroy sensitive data and result in the impairment or disruption of important business processes, loss of trade secrets or other proprietary intellectual property or public exposure of personal information (including sensitive personal information) of employees, business partners, clinical trial patients, customers and others. Any of the foregoing could have a material adverse effect on our business, prospects, operating results and financial condition.

If we do not achieve milestones or satisfy conditions regarding some of our product candidates, we may not maintain our rights under related licenses.

We are required to make substantial cash payments, achieve milestones and satisfy other conditions, including filing for and obtaining marketing approvals and introducing products, to maintain rights under certain intellectual property licenses. Due to the nature of these agreements and the uncertainties of research and development, we may not be able to achieve milestones or satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses. If we do not comply with our license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore being unable to commercialize, related products.

If we infringe third-party patent or other intellectual property rights, we may need to alter or terminate a product development program.

There may be patent or other intellectual property rights belonging to others that require us to alter our products, pay licensing fees or cease certain activities. If our products infringe patent or other intellectual property rights of others, the owners of those rights could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any action brought against us, and any license required under any rights that we infringe may not be available on acceptable terms or at all. We are aware of intellectual property rights held by third parties that relate to products or technologies we are developing. For example, we are aware of other groups investigating PSMA or related compounds and monoclonal antibodies directed at PSMA, PSMA-targeted imaging agents and therapeutics, and methylnaltrexone and other peripheral opioid antagonists, and of patents held, and patent applications filed, by these groups in those areas. While the validity of these issued patents, the patentability of these pending patent applications and the applicability of any of them to our products and programs are uncertain, if asserted against us, any related patent or other intellectual property rights could adversely affect our ability to commercialize our products.

Research, development and commercialization of a biopharmaceutical product often require choosing between alternative development and optimization routes at various stages in the development process. Preferred routes may depend on subsequent discoveries and test results and cannot be predicted with certainty at the outset. There are numerous third-party patents in our field, and we may need to obtain a license under a patent in order to pursue the preferred development route of one or more of our products or product candidates. The need to obtain a license would decrease the ultimate profitability of the applicable product. If we cannot negotiate a license, we might have to pursue a less desirable development route or terminate the program altogether.

We have been and expect to continue to be dependent on collaborators for the development, manufacturing and sales of certain products and product candidates, which expose us to the risk of reliance on these collaborators.

In conducting our operations, we currently depend, and expect to continue to depend, on numerous collaborators. Key among these new collaborations, are those with Bayer to develop and commercialize products using our PSMA antibody technology and with Fuji for the development and commercialization of 1404 and bone BSI in Japan. In addition, certain clinical trials for our product candidates may be conducted by government-sponsored agencies, and consequently will be dependent on governmental participation and funding. These arrangements expose us to the same considerations we face when contracting with third parties for our own trials.

If any of our collaborators breach or terminate its agreement with us or otherwise fail to conduct successfully and in a timely manner the collaborative activities for which they are responsible, the preclinical or clinical development or commercialization of the affected product candidate or research program could be delayed or terminated. We generally do not control the amount and timing of resources that our collaborators devote to our programs or product candidates. We also do not know whether current or future collaboration partners, if any, might pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases or conditions targeted by our collaborative arrangements. Our collaborators are also subject to similar development, regulatory, manufacturing, cyber-security and competitive risks as us, which may further impede their ability to successfully perform the collaborative activities for which they are responsible. Setbacks of these types to our collaborators could have a material adverse effect on our business, results of operations and financial condition.

We are dependent upon third parties for a variety of functions. These arrangements may not provide us with the benefits we expect.

We rely on third parties to perform a variety of functions. We are party to numerous agreements which place substantial responsibility on clinical research organizations, consultants and other service providers for the development of our approved product and our product candidates. We also rely on medical and academic institutions to perform aspects of our clinical trials of product candidates. In addition, an element of our research and development strategy has been to in-license technology and product candidates from academic and government institutions in order to minimize or eliminate investments in early research. We have entered into agreements under which we are now dependent on Valeant for the commercialization and development of RELISTOR. We may not be able to maintain our existing relationships, or establish new ones for RELISTOR or other product candidates on beneficial terms. We may not be able to enter new arrangements without undue delays or expenditures, and these arrangements may not allow us to compete successfully. Moreover, if third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct clinical trials in accordance with regulatory requirements or applicable protocols, our product candidates may not be approved for marketing and commercialization or such approval may be delayed. If that occurs, we or our collaborators will not be able, or may be delayed in our efforts, to commercialize our product candidates.

If we are unable to negotiate suitable collaboration agreements, our cash burn rate could increaseBusiness and our rate of product development could decrease.Operational Risks

Our ability to generate revenue in the near term depends on the timing of achievement, if any, of certain payment triggering events under our existing collaboration agreements and our ability to enter into additional collaboration agreements with third parties. We may not be successful in negotiating additional collaboration arrangements with pharmaceutical and biotechnology companies to develop and commercialize product candidates and technologies. If we do not enter into new collaboration arrangements, we would have to devote more of our resources to clinical product development and product launch activities and to seeking additional sources of capital to fund those activities. If we were not successful in seeking such capital, our cash burn rate would increase or we would need to take steps to reduce our rate of product development. Our ability to enter into new collaborations may be dependent on many factors, such as the results of clinical trials, competitive factors and the fit of our programs with the risk tolerance of a potential collaborator, including in relation to regulatory issues, the patent portfolio, the clinical pipeline, the stage of the available data, overall corporate goals, and financial position. If we are not able to generate revenue under our collaborations when and in accordance with our expectations or the expectations of industry analysts, this failure could harm our business and have an immediate adverse effect on the trading price of our common stock.

We lack sales and marketing infrastructure and related staff, which will require significant investment to establish and in the meantime may make us dependent on third parties for their expertise in this area.experience.

We have nonot had established sales, marketing or distribution infrastructure. If we receive marketinginfrastructure but are building out this capability in advance of the possible approval for a pharmaceutical product, significant investment, time and managerial resources would be required to buildlaunch of AZEDRA in the commercial infrastructure required to market, sell and support it without a third-party partner. Should we choose to commercialize a product directly, weU.S. We may not be successful in developing an effective commercial infrastructure or in achieving sufficient market acceptance. Alternatively, we may chooseWe do plan to market and sell products through distribution, co-marketing, co-promotion or licensing arrangements with third parties.parties for territories outside the U.S. We may also consider contracting with a third-party professional pharmaceutical detailing and sales organization to perform the marketing functionfunctions for one or more products. To the extent that we enter into distribution, co-marketing, co-promotion, detailing or licensing arrangements for the marketing and sale of product candidates, any revenues we receive will depend primarily on the efforts of third parties. We will not control the amount and timing of marketing resources these third parties devote to our products.

We are involved in various legal proceedings that are uncertain, costly and time-consuming and could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.decline.

From time to time we are involved in legal proceedings and disputes and may be involved in litigation in the future. These proceedings are complex and extended and occupy the resources of our management and employees. These proceedings are also costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in our favor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such proceedings. Defending against or settling such claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline. For more information regarding legal proceedings, see Item 31 of Part II, and Note 108 in the notes to the consolidated financial statements in Part I, Item 151 of this Form 10-K.10-Q.

In particular, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related to our products will be routinely challenged, and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell products, or could be required to pay monetary damages or royalties to license proprietary rights from third parties.

In addition, in the U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement of patent litigation, alleging that such settlements are anti-competitive and in violation of antitrust laws. In the U.S. and Europe, regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to patent infringement and prosecution. A successful antitrust claim by a private party or government entity against us could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

We are exposed to product liability claims, and in the future may not be able to obtain insurance against claims at a reasonable cost or at all.

Our business exposes us to product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability exposure. If a product liability claim is successfully brought against us, our financial position may be adversely affected. Under our license agreement with Valeant, we are responsible for product liability claims arising out of clinical trials that were conducted under our supervision. We are indemnified by Valeant under our license agreement with Valeant for product liability exposure arising from its supply, marketing and sales of RELISTOR, and maintain our own product liability insurance coverage in amounts and pursuant to terms and conditions customary for our industry, scale and the nature of our activities (subject to a deductible and an annual aggregate limitation), and other clinical trial or other insurance as required by contract and local laws. In October 2009, we released our former collaborator, Wyeth Pharmaceuticals, from its indemnification responsibility for product liability exposure arising from its marketing and sales of RELISTOR. Product liability insurance for the biopharmaceutical industry is generally expensive, when available at all, and may not be available to us at a reasonable cost in the future. Our current insurance coverage and indemnification arrangements may not be adequate to cover claims brought against us, and are in any event subject to the insuring or indemnifying entity discharging its obligations to us.

We, our CMOs and our CMOsdistributors handle hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we our CMOs or our CMOsdistributors do business. If we our CMOs or our CMOsdistributors are involved in a hazardous waste spill or other accident, we our CMOs or our CMOsdistributors could be liable for damages, penalties or other forms of censure.

Research and development work and manufacturing processes with our pipeline products involve the use of hazardous, controlled and/or radioactive materials. We, our CMOs and our CMOsdistributors are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials. In particular we, our CMOs and our distributors are subject to regulation by the U.S. Environmental Protection Agency, U.S. Department of Transportation, Occupational Safety and Health Administration and comparable state regulatory agencies. Despite procedures that we, our CMOs and our CMOsdistributors implement for handling and disposing of these materials, the risk of accidental contamination or injury cannot be eliminated. In the event of a hazardous waste spill or other accident, we, or our CMOs and our distributors could be liable for damages, penalties or other forms of censure. There may be significant costs to comply with applicable environmental laws and regulations in the future, and such costs may be incurred by us directly or passed through to us by our CMOs.CMOs and our distributors. In the event of the damages, penalties, censures or higher costs outlined above, the efficiency and cost of our research, development and commercialization pipeline may be adversely impacted.

If we lose key management and scientific personnel on whom we depend, our business could suffer.

We are dependent upon our key management, commercial and scientific personnel, the loss of whom could require us to identify and engage qualified replacements, and could cause our management and operations to suffer in the interim. Competition for qualified employees among companies in the biopharmaceutical industry is intense. Future success in our industry depends in significant part on the ability to attract, retain and motivate highly skilled employees, which we may not be successful in doing.

Health care reform measures could adversely affect our operating results and our ability to obtain marketing approval of and to commercialize our product candidates.

In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. For example, the Trump administration has indicated support for possible new measures related to drug pricing. New government legislation or regulations related to pricing or government or third-party payer decisions not to approve pricing for, or provide adequate coverage and reimbursements of, our products, hold the potential to severely limit market opportunities of such products. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. In addition, increased scrutiny by the U.S. Congress of the FDA’sFDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. In the U.S., federal legislation has changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of legislation have decreased coverage and reimbursement. Though such legislation applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. More recent legislation is intended to broaden access to health insurance, further reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, and impose new taxes and fees on the health industry and additional health policy reforms. New laws impose significant annual fees on companies that manufacture or import branded prescription drug products, and contain substantial new compliance provisions, which in each case may affect our business practices with health care practitioners. Subject to federal and state agencies issuing regulations or guidance, it appears likely that new laws will continue to pressure pharmaceutical pricing, especially under the Medicare program, and may also increase regulatory burdens and operating costs. We cannot be sure whether additional legislative changes will be enacted, whether the FDA regulations, guidance or interpretations will be changed or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.

Our and/or our collaborators’ relationships with customers and third-party payers will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us or them to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.

Health care providers, physicians and third-party payers play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our or our collaborators’ future arrangements with third-party payers and customers may expose us or them to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we or our collaborators market, sell and distribute our products that obtain marketing approval. Efforts to ensure that business arrangements comply with applicable health care laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our or our collaborators’ business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If such operations are found to be in violation of any of these laws or other applicable governmental regulations, we or the collaborator may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of related operations. If physicians or other providers or entities involved with our products are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which may adversely affect us.

Our future depends on the proper management of our current and future business operations, including those of Molecular Insight and EXINI, and theirthe associated expenses.

Our business strategy requires us to manage our business to provide for the continued development and potential commercialization of our proprietary and partnered product candidates. Our strategy also calls for us to undertake increased research and development activities and to manage an increasing number of relationships with partners and other third parties, while simultaneously managing the capital necessary to support this strategy. If we are unable to manage effectively our current operations and any growth we may experience, our business, financial condition and results of operations may be adversely affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce our personnel-related costs through reductions in our workforce, which could harm our operations, employee morale and impair our ability to retain and recruit talent. Furthermore, if adequate funds are not available, we may be required to obtain funds through arrangements with partners or other sources that may require us to relinquish rights to certain of our technologies, products or future economic rights that we would not otherwise relinquish or require us to enter into other financing arrangements on unfavorable terms.

Risks associated with our operations outside of the United States could adversely affect our business.

Although we currently conduct nearly allmost of our business in the U.S., we are developingalso conduct business internationally, and therefore have an increased exposurewhich exposes us to additional risks, including risks associated with foreign legal requirements, economic and political conditions and fluctuations in foreign currency exchange rates. We expect that we will continue to seek global opportunities for our products and to develop ourconduct business outside the U.S. in the future. Such opportunities and development will inherentlyinternationally. These business operations subject us to a number of risks and uncertainties, including:including but not limited to:

Any of these factors may, individually or as a group, have a material adverse effect on our business and results of operations. These or other similar risks could adversely affect our revenue and profitability. As we develop internationally, our exposure to these factors will increase.

Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of AZEDRA or any of our other drug candidates.future products. If there is not sufficient reimbursement for our future drugs,products, it is less likely that such drugsproducts will be widely used.

Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare or Medicaid data used to calculate these rates. Net prices for drugs may be reduced by mandatory discounts or rebates required by government health care programs. Such legislation, or similar regulatory changes or relaxation of laws that restrict imports of drugs from other countries, could reduce the net price we receive for any future marketed drugs. As a result, our future drugs might not ultimately be considered cost-effective.

We cannot be certain that reimbursement will be available for AZEDRA or any other drug candidates that we develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, any future drugs. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize AZEDRA or any other drug candidates that we develop.

In general, other factors that could affect the demand for and sales and profitability of our future drugsproducts include, but are not limited to:

Any of these factors could have a material adverse effect on the sales of any drug candidates that we may commercialize in the future.

A significant disruption in our information technology systems or a cyber-security breach could compromise our clinical/patient data or other data, trade secrets and confidential information and adversely affect our business.

We, our current and future contract research organizations, CMOs, licensees and partners are increasingly dependent on critical, complex and interdependent information technology systems to operate our businesses. Like other companies in our industry, we rely on such systems for many aspects of our business. The size and complexity of our information technology systems make them potentially vulnerable to breakdown, malicious cyber-attacks, intrusion, viruses and data security breaches by computer hackers, foreign governments, foreign companies or competitors, or by employee error or malfeasance. Such events may permit unauthorized persons to access, misappropriate and/or destroy sensitive data and result in the impairment or disruption of important business processes, loss or misuse of trade secrets, confidential information or other proprietary intellectual property or public exposure of personal information (including sensitive personal information) of employees, business partners, clinical trial patients, customers and others. Any compromise of our data security could also result in a violation of applicable privacy and other laws and a loss of confidence in our data security measures. Any of the foregoing could have a material adverse effect on our business, prospects, reputation, operating results and financial condition, including as a result of our being required to make significant investments to fix, fortify or replace our technology systems and/or being subject to lawsuits, fines, penalties or other government action. There can be no assurance that our efforts to protect our data and information technology systems will prevent breakdowns or breaches in our systems, or those of third parties with which we do business.

If our facility or those of our vendors incur damage or power is lost for a significant length of time, our business will suffer.

We store some of our preclinical and clinical data at our facilities as well as those of our vendors. Any significant degradation or failure of our or our vendors’ computer systems could cause us to inaccurately calculate or lose our data.

In addition, our stability samples are stored at our vendors’ facilities. If their facilities incur physical damage or have an extended power failure, it could result in a loss of these samples. Loss of our clinical data or stability samples could result in significant delays in our drug development process and could harm our business and operations.

Competitive Risks

Competing products in development may adversely affect acceptance of our future products.

We are aware of a number of products and product candidates described in this Annual Report underBusiness – Competitionwhich compete or may potentially compete with RELISTOR.our future products. Any of these approved products or product candidates, or others which may be developed in the future, may achieve a significant competitive advantage relative to RELISTOR,our future products and, in any event, the existing or future marketing and sales capabilities of these competitors may impair Valeant’s and/our or other collaborators’our collaborators’ ability to compete effectively in the market.

We are also aware of competitors, including those described underBusiness – Competition, whichwho are developing alternative treatments for disease targets to which our research and development programs are directed, any of which – or others which may be developed in the future – may achieve a significant competitive advantage relative to any future product we may develop.

Marketplace acceptance depends in part on competition in our industry, which is intense, and competing products in development may adversely affect acceptance of our products.

The extent to which any of our future products achieves market acceptance will depend on competitive factors. Competition in the biopharmaceutical industry is intense and characterized by ongoing research and development and technological change. We face competition from many for-profit companies and major universities and research institutions in the U.S. and abroad. We face competition from companies marketing existing products or developing new products for diseases and conditions targeted by our technologies. We are aware of a number of products and product candidates including those described in this Annual Report underBusiness – Competition, which compete or may potentially compete with RELISTOR, PSMA-targeted imaging agents and therapeutics, or our other product candidates. For instance, there are product candidates in pre-clinical or clinical development that target the side effects of opioid pain therapy, and a marketed product for the treatment of post-operative ileus could compete with RELISTOR. We are aware of several competitors, including those described underBusiness – Competitionsuch as Janssen Biotech, Inc., Aytu Bioscience, Inc. and Bayer HealthCare Pharmaceuticals Inc., which have received approval for or are developing alternative treatments or diagnostics for castration-resistant prostate cancer, some of which are directed against PSMA.cancer. Any of these competing approved products or product candidates, or others which may be developed in the future, may achieve a significant competitive advantage relative to RELISTOR, 1404, AZEDRA, PyL, 1095, or other product candidates.

Competition with respect to our technologies and productsproduct candidates is based on, among other things, product efficacy, safety, reliability, method of administration, availability, price and clinical benefit relative to cost; timing and scope of regulatory approval; sales, marketing and manufacturing capabilities; collaborator capabilities; insurance and other reimbursement coverage; and patent protection. Competitive disadvantages in any of these factors could materially harm our business and financial condition. Many of our competitors have substantially greater research and development capabilities and experience and greater manufacturing, marketing, financial and managerial resources than we do. These competitors may develop products that are superior to those we are developing and render our products or technologies non-competitive or obsolete. Our products and product candidates under development may not compete successfully with existing products or product candidates under development by other companies, universities and other institutions. Drug manufacturers that are first in the market with a therapeutic for a specific indication generally obtain and maintain a significant competitive advantage over later entrants and therefore, the speed with which industry participants move to develop products, complete clinical trials, approve processes and commercialize products is an important competitive factor. If our product candidates receive marketing approval but cannot compete effectively in the marketplace, our operating results and financial position would suffer.

Financial Risks

We have outstanding debt - and failure by us or our royalty subsidiary to fulfill our obligations under the applicable loan agreements may cause the repayment obligations to accelerate.

In November 2016, our subsidiary, MNTX Royalties, entered into a Royalty-Backed Loanloan agreement (the “Royalty-Backed Loan”) with HCRPHealthCare Royalty Partners III, L.P. (“HCRP”) pursuant to which MNTX Royalties borrowed $50 million and havehad the ability, subject to mutual agreement with HCRP, to borrow an additional $50 million up to twelve months after the initial closing date of the loan. The loan will be repaid from the royalty payments from the commercial sales of RELISTOR products owed under our agreement with Valeant.

The obligations of MNTX Royalties under the loan agreement to repay the Royalty-Backed Loan may be accelerated upon the occurrence of certain events of default, including but not limited to, if:

In connection with the Royalty-Backed Loan, MNTX Royalties granted a first priority lien and security interest (subject only to certain defined permitted liens) in all of its assets and all real, intangible and personal property, including all of its right, title, and interest in and to the royalty payments under our agreement with Valeant. Under the terms of the loan agreement, HCRP has no recourse for non-payment of the Royalty-Backed Loan to Progenics Pharmaceuticals, Inc., or to any of our assets other than the RELISTOR royalty rights held by MNTX Royalties. However, Progenics Pharmaceuticals, Inc. does have certain obligations that run to the benefit of HCRP with respect to the representations, warranties and covenants it makes under the agreement pursuant to which we contributed the royalty and related rights under the RELISTOR License to MNTX Royalties. A breach of these obligations could lead to recourse against Progenics Pharmaceuticals, Inc. with respect to any losses suffered by HCRP as a result of such breach.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, and limit our ability to react to changes in the economy or our industry.

As of December 31, 2016,2017, our outstanding non-recourse long term debt amounted to $49.5 million, which could increase by $50 million upon MNTX and HRCP’s mutual agreement, over the ensuing year. These levels$49.7 million. This level could have adverse consequences for us, including:

Developing product candidates requires us to obtain additional financing from time to time. Our access to capital funding is uncertain.

We incur significant costs to develop our product candidates.candidates and to prepare for the possible launch of AZEDRA. We do not have committed external sources of funding for these projects. We fund our operations, to a significant extent, with the proceeds from capital-raising. We may do so via equity securities issuances in public offerings, such as our first quarter 2014 $37.5 million underwritten public offering of 8.75 million shares of common stock, through our three-year facility with an investment bank pursuant to which we have sold our stock in at-the-market transactions for net proceeds of approximately $14.5 million and may sell from time to time up to $75.0a remaining $60.0 million of our stock, in at-the-market transactions, or through further debt financing. We may also fund operations through collaboration, license, further royalty financings, private placement or other agreements with one or more pharmaceutical or other companies, or the receipt of milestone and other payments for out-licensed products. To the extent we raise additional capital by issuing equity securities, existing stockholders could experience substantial dilution, and if we issue securities other than common stock, new investors could have rights superior to existing stockholders. Any further debt financing that we may obtain may involve operating covenants that restrict our business and significant repayment obligations. To the extent we raise additional funds through new collaboration and licensing arrangements, we may be required to relinquish some rights to technologies or product candidates, or grant licenses on terms that are not favorable to us.

We cannot predict with certainty when we will need additional funds, how much we will need, the form a financing may take or whether additional funds will be available at all. The variability of conditions in global financial and credit markets may exacerbate the difficulty of timing capital raising or other financing, as a result of which we may seek to consummate such transactions substantially in advance of immediate need. Our need for future funding will depend on numerous factors, including the advancement of existing product development projects and the availability of new projects; the achievement of events, most of which are out of our control and depend entirely on the efforts of others, triggering milestone payments to us; the progress and success of clinical trials and pre-clinical activities (including studies and manufacturing) involving product candidates, whether conducted by collaborators or us; the progress of research programs carried out by us; changes in the breadth of our research and development programs; the progress of research and development efforts of collaborators; our ability to acquire or license necessary, useful or otherwise attractive technologies; competing technological and market developments; the costs and timing of obtaining, enforcing and defending patent and other intellectual property rights; the costs and timing of regulatory filings and approvals; our ability to manage Progenics’Progenics’ growth or contraction; and unforeseen litigation. These factors may be more important with respect to product candidates and programs that involve technologies with which we have limited prior experience, such as those originally developed by Molecular Insight.experience. Insufficient funds may require us to delay, scale back or eliminate some or all of our research and development or commercialization programs, cause us to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose and may adversely affect our ability to operate as a going concern. We may not be able at a given necessary time to obtain additional funding on acceptable terms, or at all. Our inability to raise additional capital on terms reasonably acceptable to us would seriously jeopardize our business.

We have a history of operating losses.

Progenics hasWe have incurred substantial losses throughout its history. A large portion of our revenue has historically consisted of upfront and milestone payments from licensing transactions. We have reported operating losses for 2017 and 2015, and while we reported operating income for 2016, and 2014, as a result of a milestone paymentspayment from Valeant, theValeant. The timing and amount of any similar transactions in the future is highly unpredictable and uncertain. Without upfront or other such payments, we operate at a loss, due in large part to the significant research and development expenditures required to identify and validate new product candidates and pursue our development efforts. Moreover, we have derived no significant revenue from product sales and have only in the last several years derived revenue from royalties. We may not achieve significant product sales or royalty revenue for a number of years, if ever. We expect to incur net operating losses and negative cash flow from operations in the future, which could increase significantly if we expand our clinical trial programs and other product development efforts. Our ability to achieve and sustain profitability is dependent in part on obtaining regulatory approval for and then commercializing ourAZEDRA and other product candidates, either alone or with others. We may not be able to develop and commercialize products beyond subcutaneous RELISTOR for OIC in patients with advanced illness and for those with chronic, non-cancer pain and RELISTOR Tablets for adult patients with chronic, non-cancer pain. Our operations may not be profitable even if AZEDRA and any of our other product candidates under development are commercialized. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.

Our ability to use net operating losses to offset future taxable income is subject to certain limitations.

We currently have significant net operating losses (“NOLs”) that may be used to offset future taxable income. The U.S. Internal Revenue Code limits the amount of taxable income that may be offset annually by NOL carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation, and our use of NOL carryforwards may be further limited as a result of any future equity transactions that result in an additional change of control.

ProgenicsProgenics’’ stock price has a history of volatility and may be affected by selling pressure, including in the event of substantial sales of Progenics stock by former Molecular Insight stockholders.pressure. You should consider an investment in Progenics stock as risky and invest only if you can withstand a significant loss.

Our stock price has a history of significant volatility. It has varied between a high of $11.72 and a low of $4.60 in 2017, between a high of $9.78 and a low of $3.61 in 2016 and between a high of $11.15 and a low of $4.86 in 2015. Factors that may have a significant impact on the market price of our common stock include the results of clinical trials and pre-clinical studies undertaken by us or others;our collaboration partners; delays, terminations or other changes in development programs; developments in marketing approval efforts; developments in collaborator or other business relationships, particularly regarding RELISTOR, AZEDRA or other significant products or programs; technological innovation or product announcements by us, our collaborators or our competitors; patent or other proprietary rights developments; governmental regulation; changes in reimbursement policies or health care legislation; safety and efficacy concerns about products developed by us, our collaborators or our competitors; our ability to fund ongoing operations; fluctuations in our operating results; general market conditions; and the reporting of or commentary on such matters by the press and others. At times, our stock price has been volatile even in the absence of significant news or developments. The stock prices of biotechnology companies and securities markets generally have been subject to dramatic price swings in recent years, and financial and market conditions during that period have resulted in widespread pressures on securities of issuers throughout the world economy.

Our stockholders may be diluted, and the price of our common stock may decrease, as a result of future issuances of securities, exercises of outstanding stock options, or sales of outstanding securities.

We expect to issue additional common stock in public offerings, private placements and/or through our January 2017 sales agreement with an investment bank, pursuant to which we have sold our stock in at-the-market transactions for net proceeds of approximately $14.5 million and may sell from time to time up to $75.0a remaining $60.0 million of our stock, and to issue options to purchase common stock for compensation purposes. We may issue preferred stock, restricted stock units or securities convertible into or exercisable or exchangeable for our common stock. All such issuances would dilute existing investors and could lower the price of our common stock. Sales of substantial numbers of outstanding shares of common stock such as sales by former Molecular Insight stockholders of unregistered shares received in the acquisition, could also cause a decline in the market price of our stock. We require substantial external funding to finance our research and development programs and may seek such funding through the issuance and sale of our common stock, which we have done in follow-on primary offerings in late 2012, mid-2013, and February 2014.2014, and at-the-market transactions in the fourth quarter of 2017 and first quarter of 2018. We have a shelf registration statement which may be used to issue up to $250.0a remaining $235.0 million of common stock and other securities before any underwriter discounts, commissions, and offering expenses. We also have in place registration statements covering shares issuable pursuant to our equity compensation plans, and sales of our securities under them could cause the market price of our stock to decline. Sales by existing stockholders or holders of options or other rights may adversely affect the market price of our common stock.

We are exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act.

The Sarbanes-Oxley Act requires that we maintain effective internal controls over financial reporting and disclosure controls and procedures. Among other things, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act and related regulations (“Section 404”). Compliance with Section 404 requires substantial accounting expense and significant management efforts. Our testing, or the subsequent review by our independent registered public accounting firm, may reveal deficiencies in our internal controls that would require us to remediate in a timely manner so as to be able to comply with the requirements of Section 404 each year. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all deficiencies or weaknesses in our financial reporting. If we are not able to comply with the requirements of Section 404 in a timely manner each year, we could be subject to sanctions or investigations by the SEC, the NASDAQ Stock Market or other regulatory authorities that would require additional financial and management resources and could adversely affect the market price of our common stock. No assurance is given that our procedures and processes for detecting weaknesses in our internal control over financial reporting will be effective.

We do not intend to pay dividends on our common stock. Until such time as we pay cash dividends, our stockholders must rely on increases in our stock price for appreciation.

We have never declared or paid dividends on our common stock. We intend to retain future earnings to develop and commercialize our product candidates. Therefore, we do not intend to pay cash dividends in the foreseeable future. Until such time as we determine to pay cash dividends on our common stock, our stockholders must rely on increases in the market price of our common stock for appreciation of their respective investments.

Other Risks

Our principal stockholders are able to exert significant influence over matters submitted to stockholders for approval.

At December 31, 2016,2017, our directors and executive officers together beneficially owned or controlled approximately 3.5%4.2% of our outstanding common shares, including shares currently issuable upon option exercises, and our five largest other stockholders held approximately 47.7%44.6%. Should these parties choose to act alone or together, they could exert significant influence in determining the outcome of corporate actions requiring stockholder approval and otherwise control our business. This control could, among other things, have the effect of delaying or preventing a change in control of the Company, adversely affecting our stock price.

Anti-takeover provisions may make removal of our Board and/or management more difficult, discouraging hostile bids for control that may be beneficial to our stockholders.

Our Board is authorized, without further stockholder action, to issue from time to time shares of preferred stock in one or more designated series or classes. The issuance of preferred stock, as well as provisions in some outstanding stock options that provide for acceleration of vesting upon a change of control, and Section 203 and other provisions of the Delaware General Corporation Law could make a takeover or the removal of our Board or management more difficult; discourage hostile bids for control in which stockholders may receive a premium for their shares; and otherwise dilute the rights of common stockholders and depress the market price of our stock.

Item1B. Unresolved Staff Comments

There were no unresolved SEC staff comments regarding our periodic or current reports under the Exchange Act as of December 31, 2016.

201Item2.  Properties7.

AtItem 2. Properties

At December 31, 2016,2017, we occupied approximately 26,000 square feet of corporate office space located in New York City, pursuant to lease agreements expiring in September 2030 (subject to an early termination right) under which we pay rent and facilities charges including utilities, taxes, and operating expenses.

Our EXINI subsidiary leasesWe also lease approximately 4,000 square feet of office space in Lund, Sweden. The lease term expires on December 31, 2018, with an option to renew the term for an additional three years.

Item3.  Legal Proceedings

On January 4, 2017, we settled all claims against us under a federal action brought in 2010 by a former employee, where such former employee had complained that we had violated the anti-retaliation provisions of the Federal Sarbanes-Oxley law by terminating him. In connection with this settlement, we and the former employee exchanged mutual releases and we are to pay an aggregate sum of $4.0 million to the former employee and his attorneys, which is included in accrued expenses on our consolidated balance sheet at December 31, 2016. We have $1.7 million held by the District Court in escrow and recorded as restricted cash in other current assets on our consolidated balance sheet at December 31, 2016.Item 3. Legal Proceedings

On October 25, 2016, Progenics, Valeant, and Wyeth LLC (“Wyeth”, Valeant’sValeant’s predecessor as licensee of RELISTOR) received a notification of a Paragraph IV certification with respect to certain patents for RELISTOR Tablets. The certification accompanied the filing by Actavis LLC of an Abbreviated New Drug Application (“ANDA”) challenging such patents for RELISTOR Tablets and seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

On October 28, 2015, Progenics, Valeant, and Wyeth received a second notification of a Paragraph IV certification with respect to the same patents for RELISTOR subcutaneous injection from Actavis LLC as a result of Actavis LLC’sLLC’s filing of an ANDA with the FDA, also challenging these patents and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

On October 7, 2015, Progenics, Valeant, and Wyeth received notification of a Paragraph IV certification for certain patents for RELISTOR (methylnaltrexone bromide) subcutaneous injection, which are listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. The certification resulted from the filing by Mylan Pharmaceuticals, Inc. of an ANDA with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

On May 3, 2017, ANDA filer, Mylan Pharmaceuticals received a tentative approval letter from the FDA for Methylnaltrexone Bromide Subcutaneous Injection, 12 mg/0.6 mL single-dose vial. In accordance with the Drug Price Competition and Patent Term Restoration Act (commonly referred to as the Hatch-Waxman Act), Progenics, Valeant, and ValeantWyeth (collectively “Plaintiffs”) timely commenced litigation against each of these ANDA filers (collectively “Defendants”) in order to obtain an automatic stay of FDA approval of the ANDA until the earlier of (i) 30 months from receipt of the notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. The 30-month stays will begin expiring in the second quarter of 2018.

On February 9, 2018, Plaintiffs filed a Motion And Brief For Partial Summary Judgment on the validity of U.S. Patent 8,552,025 with the United States District Court of New Jersey. On February 16, 2018, the Court denied Defendant’s motion to strike the Summary Judgment motion, ordering Defendant to respond by February 20, 2018, with an extension available. The schedule for pretrial-order exchanges and a trial date have not been set.

In addition to the above described ANDA notifications, in October 2015 Progenics, we received notices of opposition to three European patents relating to methylnaltrexone. The oppositions were filed separately by each of Actavis Group PTC ehf. and Fresenius Kabi Deutschland GmbH. The matters are on appeal.

Each of the above-described proceedings is in its early stages and Progenicswe and Valeant continue to cooperate closely to vigorously defend and enforce RELISTOR intellectual property rights. Pursuant to the RELISTOR License Agreement between Progenicsus and Valeant, Valeant has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement.

We are or may be from time to time involved in various other disputes, governmental and/or regulatory inspections, inquires, investigations and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows.

Item4.  Not Applicable

PARTII      Item 4.  Not Applicable

PART II      

Item5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock is quoted on The NASDAQ Stock Market LLC under the symbol PGNX. The following table sets forth, for the periods indicated, the high and low sales price per share of the common stock, as reported on NASDAQ.

		High				Low
2016
Fourth quarter		$	9.78			$	4.84
Third quarter			7.09				4.19
Second quarter			5.75				4.00
First quarter			6.13				3.61
2015
Fourth quarter		$	8.37			$	5.20
Third quarter			11.15				5.38
Second quarter			9.27				4.86
First quarter			7.84				5.35

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		High				Low
2017
Fourth quarter		$	7.81			$	5.16
Third quarter			7.39				4.60
Second quarter			9.56				6.10
First quarter			11.72				8.15
2016
Fourth quarter		$	9.78			$	4.84
Third quarter			7.09				4.19
Second quarter			5.75				4.00
First quarter			6.13				3.61

 

On March 6, 2017, 5, 2018, the last sale price for our common stock, as reported by The NASDAQ Stock Market LLC, was $10.99.$7.08. There were approximately 68holders64holders of record of our common stock as of that date.

 

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Comparative Stock Performance Graph

 

The graph below compares, for the past five years, the cumulative stockholder returnreturns on our common stock with the cumulative stockholder returnreturns of (i) the NASDAQ U.S. Benchmark (TR) Index and (ii) the ICB: 4577 Pharmaceuticals (Subsector) Index, assuming an investment in each of $100 on December 30, 2011.2012.

 

 

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Dividends

 

We have never paid any dividends, and we currently anticipate that all earnings, if any, will be retained for development of our business and no dividends will be declared in the foreseeable future.

 

Item6.  Selected Financial Data

 

The selected historical consolidated statement of operations data presented below for the years ended December 31, 2017, 2016, 2015, and 20142015 and the historical consolidated balance sheet data as of December 31, 20162017 and 20152016 have been derived from our audited consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K. The historical consolidated statement of operations data presented below for the yearyears ended December 31, 20132014 and 20122013 and the historical consolidated balance sheet data as of December 31, 2015, 2014, 2013, and 20122013 have been derived from our audited consolidated financial statements that do not appear in this report. The data set forth below should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere herein. The selected historical financial information in this section is not intended to replace our financial statements and the related notes thereto.

 

		Years Ended December 31,																				Years Ended December 31,
		2016				2015				2014				2013				2012				2017				2016				2015				2014				2013
		(In thousands, except per share data)																				(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue:
Royalty income		$	10,295			$	6,608			$	3,101			$	5,923			$	4,963			$	10,965			$	10,295			$	6,608			$	3,101			$	5,923
License revenue			59,081				1,955				41,196				1,595				8,525				690				59,081				1,955				41,196				1,595
Research grants			-				-				-				275				488				-				-				-				-				275
Other revenue			53				113				80				69				72				43				53				113				80				69
Total revenue			69,429				8,676				44,377				7,862				14,048				11,698				69,429				8,676				44,377				7,862
Expenses:
Research and development			37,569				28,196				28,592				34,582				33,001				42,589				37,569				28,196				28,592				34,582
General and administrative			23,356				18,184				15,489				15,541				16,538				24,909				23,356				18,184				15,489				15,541
Intangible impairment charges			-				-				2,676				919				-				-				-				-				2,676				919
Change in contingent consideration liability			(4,600	)			1,600				1,500				(200	)			-				2,600				(4,600	)			1,600				1,500				(200	)
Total operating expenses			56,325				47,980				48,257				50,842				49,539				70,098				56,325				47,980				48,257				50,842
Other operating income			-				-				7,250				-				-				-				-				-				7,250				-
Operating income (loss)			13,104				(39,304	)			3,370				(42,980	)			(35,491	)
Operating (loss) income																							(58,400	)			13,104				(39,304	)			3,370				(42,980	)
Other income (expense):
Other (expense) income:
Interest (expense) income, net			(493	)			52				51				46				60				(4,038	)			(493	)			52				51				46
Other expense, net			(34	)			-				-				-				-				(247	)			(34	)			-				-				-
Total other (expense) income			(527	)			52				51				46				60				(4,285	)			(527	)			52				51				46
Income (loss) before income tax (expense) benefit			12,577				(39,252	)			3,421				(42,934	)			(35,431	)
Income tax (expense) benefit			(1,844	)			133				989				362				-
Net income (loss)			10,733				(39,119	)			4,410				(42,572	)			(35,431	)
(Loss) income before income tax (expense) benefit																							(62,685	)			12,577				(39,252	)			3,421				(42,934	)
Income tax benefit (expense)																							11,672				(1,844	)			133				989				362
Net (loss) income																							(51,013	)			10,733				(39,119	)			4,410				(42,572	)
Net loss attributable to noncontrolling interests			(73	)			(7	)			-				-				-				-				(73	)			(7	)			-				-
Net income (loss) attributable to Progenics		$	10,806			$	(39,112	)		$	4,410			$	(42,572	)		$	(35,431	)
Net (loss) income attributable to Progenics																						$	(51,013	)		$	10,806			$	(39,112	)		$	4,410			$	(42,572	)
Per share amount on net income (loss) attributable to Progenics:
Per share amount on net (loss) income attributable to Progenics:																					Per share amount on net (loss) income attributable to Progenics:
Basic		$	0.15			$	(0.56	)		$	0.06			$	(0.76	)		$	(1.02	)		$	(0.73	)		$	0.15			$	(0.56	)		$	0.06			$	(0.76	)
Diluted		$	0.15			$	(0.56	)		$	0.06			$	(0.76	)		$	(1.02	)		$	(0.73	)		$	0.15			$	(0.56	)		$	0.06			$	(0.76	)

 

		December 31,																				December 31,
		2016				2015				2014				2013				2012				2017				2016				2015			��	2014				2013
		(In thousands)																				(In thousands)
Consolidated Balance Sheets Data:
Cash and cash equivalents		$	138,909			$	74,103			$	119,302			$	65,860			$	58,838			$	90,642			$	138,909			$	74,103			$	119,302			$	65,860
Auction rate securities			-				-				-				2,208				3,240				-				-				-				-				2,208
Working capital			131,744				73,556				115,241				64,055				58,805				81,511				131,744				73,556				115,241				64,055
Total assets			198,986				131,251				161,037				114,541				76,308				145,957				198,986				131,251				161,037				114,541
Other liabilities - long term			77,867				30,861				29,443				28,935				1,078				67,145				77,867				30,861				29,443				28,935
Total stockholders' equity			104,762				90,661				124,909				78,979				66,568				63,453				104,762				90,661				124,909				78,979

 

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Item7.  Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)(MD&A)

 

Overview

 

We develop innovative medicines and other technologies to target and treat cancer. Our pipeline includes: (1) therapeutic agents designed to precisely target cancer (AZEDRA, 1095, and 1095);PSMA TTC), (2) PSMA-targeted imaging agents for prostate cancer (1404 and PyL);, and (3) imaging analysis tools.technology. Our first commercial product, RELISTOR (methylnaltrexone bromide) for opioid-induced constipation,OIC, is partnered with Valeant.Salix Pharmaceuticals, Inc. (a wholly-owned subsidiary of Valeant).

On 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 action date of April 30, 2018 under the PDUFA. 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 no approved therapies in the U.S. for the treatment of these ultra-rare diseases. While AZEDRA has received Breakthrough Therapy, Orphan Drug, and Fast Track designations from the FDA, there can be no assurance that our NDA will be approved.

 

We have licensed RELISTOR to Valeant and our PSMA antibody technology to Bayer, and have partnered other internally-developed or acquired compounds and technologies with third parties. We continue to consider opportunities for strategic collaborations, out-licenses and other arrangements with biopharmaceutical companies involving proprietary research, development and clinical programs, and may in the future also in-license or acquire additional oncology compounds and/or programs.

EXINI Acquisition Update

 

On November 12, 2015,Valeant Agreement

Under our agreement with Valeant, we acquired 92.45%received a development milestone of $40.0 million upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, and a development milestone of $50.0 million for the U.S. marketing approval of an oral formulation of RELISTOR in 2016. We are also eligible to receive up to $200.0 million of commercialization milestone payments upon first achievement of specified U.S. sales targets in any single calendar year. The following table summarizes the commercialization milestones (in thousands):

Net Sales Level in any Single Calendar Year		Payment
In excess of $100 million		$	10,000
In excess of $150 million			15,000
In excess of $200 million			20,000
In excess of $300 million			30,000
In excess of $750 million			50,000
In excess of $1 billion			75,000
		$	200,000

Each commercialization milestone payment is payable one time only, regardless of the outstanding sharesnumber of EXINI, a Lund, Swedentimes the condition is satisfied, and all six payments could be made within the same calendar year. We are also eligible to receive royalties from Valeant and its affiliates based leaderon the following royalty scale: 15% on worldwide net sales up to $100.0 million, 17% on the next $400.0 million in worldwide net sales, and 19% on worldwide net sales over $500.0 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Valeant receives from sublicensees outside the development of advanced imaging analysis tools and solutions for medical decision support. EXINI's operations are included in our consolidated financial statements beginning November 12, 2015, the date we acquired control. Through the end of the extended acceptance period of November 27, 2015, we acquired additional outstanding shares, bringing our ownership to 96.81%. We commenced a judicial process in Sweden for acquiring the remaining shares and EXINI was delisted and ceased to be publicly traded effective as of the close of trading on December 4, 2015. On December 8, 2016, a Swedish arbitral tribunal awarded us advanced title to the remaining shares of EXINI and, as of that date, EXINI became a wholly-owned subsidiary with 100% of the voting shares owned by us.

A portion of EXINI’s results of operations from November 12, 2015 through December 31, 2015 and from January 1, 2016 through December 8, 2016 has been allocated to the noncontrolling interests in EXINI for 2015 and 2016, respectively.

License AgreementU.S.

 

In April 2016, weValeant has also entered into an agreement with a Bayer subsidiary granting Bayer exclusive worldwide rightslicense and distribution agreements to develop and commercialize products using our PSMA antibody technology in combination with Bayer's alpha-emitting radionuclides.expand its sales channels outside of the U.S. for RELISTOR.

 

Royalty MonetizationBayer Agreement

 

On November 4, 2016, through a new wholly-owned subsidiary MNTX Royalties, we entered into a loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”) pursuant to which HCRP agreed to make term loans in an aggregate principal amount of up to $100.0 million. We borrowed $50.0 million and can borrow an additional $50.0 million, subject to mutual agreement with HCRP, up to twelve months after the closing date. (seeNote 9. Long-Term Debt, Net for additional information)

Liquidity and Capital Resources

Our current principal sources of revenue from operations are royalty, development and commercial milestones, and sublicense revenue-sharing payments. Royalty and further milestone payments from RELISTOR depend on success in development and commercialization, which is dependent on many factors, such as Valeant’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 RELISTOR. Under theour agreement with Bayer, we received in the second quarteran upfront payment of 2016 a $4.0 million upfront payment and a $1.0milestone payments totaling $3.0 million payment related, and could receive up to the achievementan additional $46.0 million in potential clinical and regulatory development milestones. We are also entitled to single digit royalties on net sales, and potential net sales milestone payments up to an aggregate total of a preclinical development milestone. In addition, in the fourth quarter of 2016, we recognized $2.0$130.0 million, as license revenue from Bayer related to the achievement of a second preclinical development milestone. In 2015, we received a $1.5 million milestone paymentwell as a result of CytoDyn’s dosing of the first patient in its Phase 3 clinical trial for PRO 140. In 2014, we Progenics and Ono Pharmaceutical Co., Ltd. (“Ono”), our former licensee of RELISTOR in Japan, settled all claims between them relating to an arbitration commenced by us in 2013, the parties’ October 2008 License Agreement, and the former licensee’s development and commercialization of the drug. In connection therewith, the parties exchanged mutual releases and the former licensee paid us $7.25 million, which is reflected as other operating income in our consolidated statement of operations in 2014.royalty payments.

 

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We fund our operations to a significant extent from capital-raising. In 2014, we completed an underwritten public offering of 8.75 million shares of common stock at a public offering price of $4.60 per share, resulting in net proceeds of approximately $37.5 million. In 2016, we entered into the Royalty-Backed Loan resulting in net proceeds of approximately $48.7 million.

If we do not realize sufficient royalty or milestone revenue from RELISTOR, or are unable to enter into favorable collaboration, license, asset sale, additional capital raising, or other financing transactions, we will have to reduce, delay, or eliminate spending on certain programs, and/or take other economic measures.

Results of Operations

 

The following table is an overview of our results of operations (in thousands, except percentages):

 

		2016				2015				2014				2016 vs. 2015				2015 vs. 2014				2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Total revenue		$	69,429			$	8,676			$	44,377				700	%			(80%	)		$	11,698			$	69,429			$	8,676				(83	%)			700	%
Operating expenses		$	56,325			$	47,980			$	48,257				17	%			(1%	)		$	70,098			$	56,325			$	47,980				24	%			17	%
Operating income (loss)		$	13,104			$	(39,304	)		$	3,370				(133%	)			(1266%	)		$	(58,400	)		$	13,104			$	(39,304	)			(546	%)			(133	%)
Net income (loss)		$	10,733			$	(39,119	)		$	4,410				(127%	)			(987%	)		$	(51,013	)		$	10,733			$	(39,119	)			(575	%)			(127	%)
Net income (loss) attributable to Progenics		$	10,806			$	(39,112	)		$	4,410				(128%	)			(987%	)		$	(51,013	)		$	10,806			$	(39,112	)			(572	%)			(128	%)

 

Revenue

 

Our sourcessources of revenue during the years indicated below include royalties and license fees from Valeant, Bayer, and other licensees and, to a small extent, sale of research reagents. The following table is a summary of our worldwide revenue (in thousands, except percentages):

 

Source		2016				2015				2014				2016 vs. 2015				2015 vs. 2014				2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Royalty income		$	10,295			$	6,608			$	3,101				56	%			113	%		$	10,965			$	10,295			$	6,608				7	%			56	%
License revenue			59,081				1,955				41,196				2922	%			(95%	)			690				59,081				1,955				(99	%)			2922	%
Other revenue			53				113				80				(53%	)			41	%			43				53				113				(19	%)			(53	%)
Total revenue		$	69,429			$	8,676			$	44,377				700	%			(80%	)		$	11,698			$	69,429			$	8,676				(83	%)			700	%

 

Royalty income.We recognized royalty income primarily based on the below net sales of RELISTOR as reported to us by Valeant (in thousands).

 

		2016				2015				2014				2016 vs. 2015				2015 vs. 2014				2017				2016				2015				2017 vs. 2016				2016 vs. 2015
U.S.		$	66,900			$	40,700			$	16,200				64	%			151	%		$	71,100			$	66,900			$	40,700				6	%			64	%
Outside U.S.			3,700				3,100				4,100				19	%			(24%	)			2,000				3,700				3,100				(46	%)			19	%
Worldwide net sales of RELISTOR		$	70,600			$	43,800			$	20,300				61	%			116	%		$	73,100			$	70,600			$	43,800				4	%			61	%

 

Royalty income increased by $0.7 million, or 7%, in 2017 compared to 2016, primarily attributable to higher sales of RELISTOR tablets. Valeant launched RELISTOR tablets in the U.S. in September 2016 following receipt of FDA approval in July 2016. Royalty income increased by $3.7 million, or 56%, in 2016 compared to 2015, primarily attributable to higher sales of RELISTOR subcutaneous injection. The 2016 period also benefited from the launch of RELISTOR tablets.

License revenue.The decrease in license revenue of $58.4 million, or 99%, in 2017 compared to 2016 was primarily attributable to the $50.0 million milestone payment under the Valeant license agreement and $7.0 million upfront and milestone payments under the Bayer license agreement, all of which were received in 2016. The increase in worldwide net saleslicense revenue of RELISTOR of $26.8$57.1 million, or 2,922%, in 2016 compared to 2015 was primarily attributable to higher unit sales. Sales of RELISTOR tablets were launched in September 2016. The increase in worldwide net sales of RELISTOR of $23.5 million in 2015 compared to 2014 was primarily attributable to higher unit sales of RELISTOR subcutaneous injection. In 2014, RELISTOR subcutaneous injection was approved for treatment of OIC in non-cancer pain patients.

License revenue.The increase in license revenue of $57.1 million in 2016 compared to 2015 was attributable to a $50.0 millionthe aforementioned milestone payment received under the RELISTOR License Agreement and $7.0 million for upfront and milestone payments under the Bayer license agreement. The decrease in license revenue of $39.2 million in 2015 compared to 2014 was primarily attributable to a $40.0 million milestone payment received from Valeant and Bayer ($57.0 million in 2014 for the approval of RELISTOR subcutaneous injection for treatment of OIC in non-cancer pain patients.aggregate).

 

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OperatingExpenses

 

The following table is a summary of our operating expenses (in thousands, except percentages):

 

Operating Expenses		2016				2015				2014				2016 vs. 2015				2015 vs. 2014				2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Research and development		$	37,569			$	28,196			$	28,592				33	%			(1%	)		$	42,589			$	37,569			$	28,196				13	%			33	%
General and administrative			23,356				18,184				15,489				28	%			17	%			24,909				23,356				18,184				7	%			28	%
Intangible impairment charges			-				-				2,676				N/A				(100%	)
Change in contingent consideration liability			(4,600	)			1,600				1,500				(388%	)			7	%			2,600				(4,600	)			1,600				(157	%)			(388	%)
Total operating expenses		$	56,325			$	47,980			$	48,257				17	%			(1%	)		$	70,098			$	56,325			$	47,980				24	%			17	%

 

Research and Development(“R&D”)

 

R&D expenses increased by $5.0 million, or 13%, in 2017 compared to 2016, primarily attributable to higher clinical trial and contract manufacturing costs for PyL and higher consulting fees to support the NDA filing and pre-approval inspection readiness for AZEDRA. Partially offsetting the increase were lower clinical drug supply costs for AZEDRA (as the Phase 2 registrational trial was completed) and lower manufacturing scale-up costs for 1095. R&D expenses increased by $9.4 million, or 33%, in 2016 compared to 2015, and decreased by $0.4 million, or 1%, in 2015 compared to 2014. The increase in 2016 was primarily attributable to higher clinical trial expenses related to the start of the Phase 3 trial for 1404 and the Phase 2/3 trial for PyL inPyL. In addition, to higher contract manufacturing expenses for the planned Phase 1 trial of 1095 and the Phase 2 registrational trial for AZEDRA. The decreaseAZEDRA contributed to the year-over-year increase in 2015 was primarily attributable to lower personnel related expenses (salaries, benefits, and stock-based compensation), partially offset by higher contract manufacturing expenses for AZEDRA.2016.

 

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General and Administrative (“(“G&A”&A”)

 

G&A expenses increased by $1.6 million, or 7%, in 2017 compared to 2016, primarily attributable to higher costs associated with building our commercial capabilities in preparation for a potential AZEDRA launch if approved by the FDA, partially offset by depreciation expense. In addition, the 2016 period included an accrual for compensation related to litigation with a former employee, which was not repeated in 2017. G&A expenses increased by $5.2 million, or 28%, in 2016 compared to 2015, and $2.7 million, or 17%, in 2015 compared to 2014. The increase in 2016 was primarily attributable to higher depreciation expense as a resultbecause of a reduction in the remaining useful lives of the leasehold improvements at our former location in Tarrytown, New York, higher compensation costs related to increases in headcount, and higher market research expenses. The increase in 2015 was primarily attributable to an accrual for compensation related to litigation with a former employee and personnel related expenses (salaries, benefits, and stock-based compensation).

Intangible Impairment Charges

 

There were no intangible impairment charges recognized in 2016 and 2015. The 2014 charge of $2.7 million was due to impairments of our indefinite- and finite-lived intangibles based on our annual review of the intangible assets.

Change in Contingent Consideration Liability

The increase in the contingent consideration liability of $2.6 million in 2017 was primarily attributable to a higher estimated probability of success of AZEDRA used to calculate the potential milestone payments to former Molecular Insight stockholders. Our registrational Phase 2b trial of AZEDRA achieved the primary endpoint under a SPA agreement with the FDA. The reduction in the discount period used to calculate the present value of the contingent consideration liability also contributed to the increase in the contingent consideration liability.

 

The decrease in the contingent consideration liability of $4.6$4.6 million in 2016 resulted primarily from a change in the discount ratesrate and sales projections used in calculating the contingent consideration liability for the potential sales-based milestone payments to former Molecular Insight stockholders under the acquisition agreement. The increase in the contingent consideration liability of $1.6 million in 2015 resulted primarily from a decrease in the discount period.stockholders.

 

OtherOther (Expense) Income (Expense)

 

The following table is a summary of our other (expense) income (expense) (in thousands, except percentages):

 

Other Income (Expense)		2016				2015				2014				2016 vs. 2015				2015 vs. 2014
Other (Expense) Income																						2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Interest (expense) income, net			(493	)			52				51				(1048%	)			2	%			(4,038	)			(493	)			52				719	%			(1048	%)
Other expense, net			(34	)			-				-				N/A				N/A				(247	)			(34	)			-				626	%			N/A
Other (expense) income		$	(527	)		$	52			$	51				(1113%	)			2	%		$	(4,285	)		$	(527	)		$	52				713	%			(1113	%)

 

Total other (expense) income, net increased by $3.8 million, or 713%, in 2017 compared to 2016, primarily attributable to interest expense for the Royalty-Backed Loan, which was executed in November 2016. Other income (expense) decreasedexpense, net increased by $579 thousand,$0.6 million, or 1113%1,113%, in 2016 compared to 2015, and increased by $1 thousand, or 2%, in 2015 compared to 2014. The decrease in 2016 was primarily attributable to interest expense on the Royalty-Backed Loan, partially offset by an increase in interest income due to higher average cash balances during the current year and higher average interest rates earned by our money market funds. The change in 2015 was essentially flat with 2014.Loan.

 

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Income Taxes

 

The following table is a summary of our income tax (provision) benefit (expense) and effective tax rate (in thousands, except percentages):

 

		2016				2015				2014				2017				2016				2015
Income tax (provision) benefit		$	(1,844	)		$	133			$	989
Income tax benefit (expense)														$	11,672			$	(1,844	)		$	133
Effective tax rate			14.7	%			0.3	%			-28.8	%			18.6	%			14.7	%			0.3	%

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate AMT and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss (“NOL”) carryforwards created in tax years beginning after December 31, 2017.The indefinite carryforward period for NOLs may also mean that deferred tax liabilities related to indefinite-lived intangibles, commonly referred to as “naked credits,” can be considered as support for realization of deferred tax assets, which can affect the need to record or maintain a valuation allowance for deferred tax assets.

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We are required to recognize the effect of the tax law changes in the period of enactment, including by re-measuring our U.S. deferred tax assets and liabilities as well as our valuation allowance against our net U.S. deferred tax assets. We are also required to assess our naked credit as it may provide an income source for our existing temporary differences that will reverse to generate indefinite lived NOLs. As a result, we recorded an income tax provision increased by $2.0benefit of approximately $11.7 million in 2017, of which $6.6 million related to the reduction in the federal and state tax rates, $4.8 million related to the use of our naked credit as a source of income to release a portion of our valuation allowance and the remaining $0.2 million related to a refundable AMT credit. Our effective tax rate for 2017 was 18.6%.

In 2016, we recorded an income tax expense of approximately $1.8 million in 2016 compared to 2015 as a result of an increase in the effective tax rate. Theour effective tax rate for 2016 wasto 14.7%. Our effective tax rate in 2016 was impacted by our relocation to New York City, which has its own local tax rate and adds to the overall tax rate used for calculating the income tax provision. TheIn 2015, we recorded an income tax benefit decreased by $0.8 million in 2015 compared to 2014of approximately $133 thousand as a result of the change in the temporary difference between carrying amounts of in-processin process research and development assets for financial reporting purposes and the amounts used for income tax purposes. TheOur effective tax rate for 2015 was 0.3%.

 

Net Net(Loss) Income(Loss)

 

Our net incomeloss was $10.8$51.0 million in 2016 compared to a net loss of2017 and $39.1 million in 2015, andcompared to net income of $4.4$10.8 million in 2014.2016. The $50.0 million milestone paymentspayment received from the Valeant license agreement of $50.0 million and $40.0 million in 2016 and 2014, respectively, werefor the approval of RELISTOR tablets was the primary driversdriver for realizing net income in those years.2016.

 

Liquidity and Capital Resources

 

The following table is a summarysummary of selected financial data (in thousands):

 

		2016				2015				2014				2017				2016				2015
Cash and cash equivalents		$	138,909			$	74,103			$	119,302			$	90,642			$	138,909			$	74,103
Accounts receivable, net		$	4,864			$	3,543			$	109			$	3,972			$	4,864			$	3,543
Total assets		$	198,986			$	131,251			$	161,037			$	145,957			$	198,986			$	131,251
Working capital		$	131,744			$	73,556			$	115,241			$	81,511			$	131,744			$	73,556

 

We have to-date fundedOur current principal sources of revenue from operations principally through proceeds received from private placementsare royalties, development and commercial milestones, and sublicense revenue-sharing payments. Our principal sources of equity securities, public offeringsliquidity are our existing cash and cash equivalents. As of common stock, monetization of royalties, up-front payments, development milestones, royalties from license agreements, and proceeds from the exercise of outstanding stock options.

At December 31, 2016,2017, we had $138.9 million in cash and cash equivalents an increase of $64.8approximately $90.6 million, a decrease of $48.3 million from $74.1$138.9 million at December 31, 2015. 2016. We will continue to have significant cash requirements to support product development activities and the potential commercial launch of AZEDRA if approved by the FDA. The amount and timing of cash requirements will depend on the progress and success of our clinical development programs, regulatory and market acceptance, and the resources we devote to research and commercialization activities. The amount of cash on-hand will depend on the progress of various clinical programs, the timing of our commercialization effort scale-up, and the achievement of various milestones and royalties under our existing license agreements.

We believe that our existing balances ofcurrent cash and cash equivalents, which includes $5.0 million of net proceeds received from the sale of our stock in at-the-market transactions under a controlled equity offering sales agreement (see Shelf Registration section below for additional details), together with the net proceeds of approximately $9.5 million received from additional at-the-market transactions in the first quarter of 2018, will be sufficient to satisfyfund our working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with our existing operations overfor at least the next twelve (12) months. We expect to fund our operations going forward with existing cash resources, anticipated revenues from our existing license agreements, and cash that we may raise through future capital raising and other financing transactions.

 

IfIf we do not realize sufficient royaltiesroyalty or milestone paymentsrevenue from Valeant, Bayer,our license agreements, or are unable to enter into favorable collaboration, license, asset sale, additional capital raising, or other licensees, or raise additional capital,financing transactions, we will have to reduce, delay, or eliminate spending on certain programs, and/or take other economic measures.

Shelf Registration

 

During the first quarter of 2017, we establishedfiled a $250.0 million replacement shelf registration statement.statement, which was declared effective as of January 19, 2017. In addition, we also entered into a controlled equity offering sales agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), as sales agent, pursuant to which we may offer and sell through Cantor, from time to time, shares of our common stock up to an aggregate offering price of $75.0 million. This Sales Agreement may be terminated by Cantor or us at any time upon ten (10) days’ notice, or by Cantor at any time in certain circumstances, including the occurrence of a material adverse change in our business or financial condition.

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During the fourth quarter of 2017, we sold a total of 854,606 shares of our common stock in at-the-market transactions under the Sales Agreement for net proceeds, after deducting commissions, of approximately $5.0 million at an average selling price of $6.06 per share. At December 31, 2017, we had 320,182 shares of our common stock subscribed in at-the-market transactions under the Sales Agreement for net proceeds, after deducting commissions, of approximately $2.1 million at an average selling price of $6.79 per share. Accordingly, we have recorded a subscription receivable of $2.1 million as a reduction of stockholders’ equity in our consolidated balance sheet at December 31, 2017. Subsequent to the close of the quarter, in January 2018, we sold an additional 1,217,346 shares of our common stock in at-the-market transactions under the Sales Agreement for net proceeds, after deducting commissions, of approximately $7.4 million at an average selling price of $6.30 per share. Together with the subscription receivable, we received net proceeds of approximately $9.5 million in January 2018.

 

CashCash Flows

 

The followingfollowing table is a summary of our cash flow activities (in thousands):

 

		2016				2015				2014
Net cash provided by (used in) operating activities		$	19,209			$	(40,137	)		$	13,726
Net cash (used in) provided by investing activities		$	(3,939	)		$	(6,524	)		$	1,829
Net cash provided by financing activities		$	49,622			$	1,445			$	37,887

		2017				2016				2015
Net cash (used in) provided by operating activities		$	(53,628	)		$	19,209			$	(40,137	)
Net cash used in investing activities		$	(232	)		$	(3,939	)		$	(6,524	)
Net cash provided by financing activities		$	5,510			$	49,622			$	1,445

 

Operating Activities

 

Net cash provided byused in operating activities during 20162017 and 2014 was primarily attributable to the milestone payments received from Valeant for the RELISTOR approvals ($50.0 million in 2016 and $40.0 million in 2014), partially offset by operating expenses, net of non-cash items. Net cash used by operating activities during 2015 was primarily attributable to funding operating expenses, net of non-cash items. Net cash provided by operating activities during 2016 was primarily attributable to the milestone payment received from Valeant for the approval of RELISTOR tablets ($50.0 million in 2016), partially offset by operating expenses, net of non-cash items.

 

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Investing Activities 

 

Net cash used in investing activities was primarily related to capital expenditures in 2017 and 2016 and the acquisition of EXINI in 2015, partially offset by proceeds from the sale of fixed assets. During 2014, net cash provided by investing activities included $2.4 million in proceeds from redemption of auction rate securities.

 

Financing Activities

 

Net cash provided by financing activities during 2017, 2016, and 2015 and 2014 was primarily attributable to net proceeds from the sale of our common stock in at-the-market transactions, net proceeds from the royalty monetization, and proceeds from the exercise of stock options, in addition to the net proceeds from the royalty monetization in 2016 and from the issuance of common stock from an underwritten public offering in 2014.respectively.

 

Contractual Obligations

 

Our funding requirements for the next 12 months and beyond will include required payments under operating leases and fixed payments under license agreements. The following table summarizes our contractual obligations as of December 31, 20162017 for future payments under these agreements:

 

						Payments Due by Period (1)																				Payments Due by Period (1)
		Total				Less than one year				1 to 3 years				3 to 5 years				Greater than 5 years				Total				Less than one year				1 to 3 years				3 to 5 years				Greater than 5 years
Operating leases		$	29.9			$	1.8			$	3.7			$	3.7			$	20.7			$	28.1			$	1.9			$	3.7			$	4.0			$	18.5
Fixed payments under license agreements			1.2				0.2				0.4				0.1				0.5				0.8				0.1				0.1				0.2				0.4
Total		$	31.1			$	2.0			$	4.1			$	3.8			$	21.2			$	28.9			$	2.0			$	3.8			$	4.2			$	18.9

 

(1)           Does not include milestone or contractual payment obligations contingent upon the achievement of certain milestones or events if the amount and timing of such obligations are unknown or uncertain. We may be required to pay additional amounts up to approximately: (i) $77.3 million in contingent milestone payments under our license agreements; (ii) $93.0 million in payments to the former stockholders of Molecular Insight, contingent upon achieving specified commercialization events or sales targets; and (iii) $71.6 million in future principal and interest, based upon estimated sales projections, under the Royalty-Backed Loan.

Does not include milestone or contractual payment obligations contingent upon the achievement of certain milestones or events if the amount and timing of such obligations are unknown or uncertain. We may be required to pay additional amounts up to approximately: (i) $90.6 million in contingent milestone payments under our license agreements; (ii) $93.0 million in payments to the former stockholders of Molecular Insight, contingent upon achieving specified commercialization events or sales targets; and (iii) $77.2 million in future principal and interest, based upon estimated sales projections, under the Royalty-Backed Loan.

 

We periodically assess the scientific progress and merits of each of our programs to determine if continued research and development is commercially and economically viable. Certain of our programs have been terminated due to the lack of scientific progress and prospects for ultimate commercialization. Because of the uncertainties associated with research and development in these programs, the duration and completion costs of our research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete research and development projects in a timely manner or failure to enter into collaborative agreements could significantly increase capital requirements and adversely affect our liquidity.

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Our cash requirements may vary materially from those now planned because of results of research and development and product testing, changes in existing relationships or new relationships with licensees, licensors or other collaborators, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing patent claims, the regulatory approval process, manufacturing and marketing and other costs associated with the commercialization of products following receipt of regulatory approvals and other factors.

 

The above discussion contains forward-looking statements based on our current operating plan and the assumptions on which it relies. There could be deviations from that plan that would consume our assets earlier than planned.

 

Off-Balance Sheet Arrangements and Guarantees

 

We have no obligations under off-balance sheet arrangements and do not guarantee the obligations of any other unconsolidated entity.

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. Our significant accounting policies are disclosed in Note 2 to our financial statements included in this Report. The selection and application of these accounting principles and methods requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. We evaluate these estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities that are not otherwise readily apparent. While we believe that the estimates and assumptions we use in preparing the financial statements are appropriate, they are subject to a number of factors and uncertainties regarding their ultimate outcome and, therefore, actual results could differ from these estimates.

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The critical accounting policies we use and the estimates we make are described below. These are policies and estimates that we believe are the most important in portraying our financial condition and results of operations, and that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.

 

Revenue Recognition.Recognition. We recognize revenue from all sources based on the provisions of the SEC’s Staff Accounting Bulletin (“SAB”) No. 104 (“SAB 104”) and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605 (Topic 605,Revenue Recognition).

 

ASC 605 specifies how to separate deliverables in multiple-deliverable arrangements, and how to measure and allocate arrangement consideration to one or more units of accounting, and provides that the delivered item(s) are separate units of accounting, if (i) the delivered item(s) have value to a collaborator on a stand-alone basis, and (ii), if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

 

Royalty revenue or loss is recognized based upon net sales of related licensed products, and is recognized in the period the sales (losses) occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no remaining performance obligations under the arrangement providing for the royalty. Royalty loss is recognized based upon reported sales deductions in excess of gross sales resulting in net losses and are recognized in the period net losses occur. Royalty loss is classified in royalty income in the consolidated statements of operations and the related accrued royalty loss liability is classified in accounts payable and accrued expenses in the consolidated balance sheets.

 

Share-Based Payment Arrangements.Arrangements. Our share-based compensation of employees includes non-qualified stock options and restricted stock, which are compensatory under ASC 718 (Topic 718,Compensation – Stock Compensation). We account for share-based compensation to non-employees, including non-qualified stock options and restricted stock, in accordance with ASC 505 (Topic 505,Equity).

 

The fair value of each non-qualified stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The model requires input assumptions with respect to (i) expected volatility of our common stock, which is based upon the daily quoted market prices on The NASDAQ Stock Market LLC over a period equal to the expected term, (ii) the period of time over which employees, officers, directors and non-employee consultants are expected to hold their options prior to exercise, (iii) expected dividend yield (zero in our case due to never having paid dividends and not expecting to pay dividends in the future), and (iv) risk-free interest rates for periods within the expected term of the options, which are based on the U.S. Treasury yield curve in effect at the time of grant.

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Historical volatilities are based upon daily quoted market prices of our common stock on The NASDAQ Stock Market LLC over a period equal to the expected term of the related equity instruments. We rely only on historical volatility since we believe it is generally viewed as providing the most reliable indication of future volatility. In estimating expected future volatility, we assume it will be consistent with historical; we calculate historical volatility using a simple average calculation; we use available historical data for the length of the option’s expected term, and we consistently use a sufficient number of price observations. Since our stock options are not traded on a public market, we do not use implied volatility.

 

The expected term of options granted represents the period of time that options granted are expected to be outstanding based upon historical data related to exercise and post-termination cancellation activity. The expected term of stock options granted to our Chief Executive Officer (“CEO”) and non-employee directors, consultants and officers are calculated separately from stock options granted to other employees.

 

We apply a forfeiture rate to the number of unvested awards in each reporting period in order to estimate the number of awards that are expected to vest. Estimated forfeiture rates are based upon historical data on vesting behavior of employees. We adjust the total amount of compensation cost recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

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Changes in the assumptions usedused to compute the fair value of the option awards are likely to affect their fair value and the amount of compensation expense recognized in future periods. A higher volatility, longer expected term and higher risk-free rate increases the resulting compensation expense recognized in future periods. Conversely, a lower volatility, shorter expected term and lower risk-free rate decreases such expense recognized in future periods.

 

Clinical Trial and Other Research and Development Expenses.Clinical trial expenses, which are included in research and development expenses, represent obligations resulting from contracts with various clinical investigators and clinical research organizations in connection with conducting clinical trials for our product candidates. Such costs are expensed as incurred, and are generally based on the total number of patients in the trial, the rate at which the patients enter the trial and the period over which the clinical investigators and clinical research organizations provide services. We believe that this method best aligns the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual results differ from our estimates. In addition to clinical trial expenses, we estimate the amounts of other research and development expenses, for which invoices have not been received at the end of a period, based upon communication with third parties that have provided services or goods during the period. Such estimates are subject to change as additional information becomes available.

 

In–In–Process Research and Development, Intangible Assets-TechnologyAssets-Technology, and Goodwill.GoodwillIn connection with the acquisitions of Molecular Insight and EXINI, we. We have established a policy for accounting for intangible assets, under which in-process research and development (“IPR&D”), intangible assets-technology, and goodwill are initially measured at fair value and capitalized as intangible assets. Impairment tests for goodwill and IPR&D, which are indefinite-lived intangibles, are performed annually in the fourth quarter, unless impairment indicators require an earlier evaluation. Finite-lived intangible assets, including intangible assets-technology, are evaluated only when impairment indicators are present. IPR&D will be amortized upon and subject to commercialization of the underlying candidates and intangible assets-technology is amortized over the relevant estimated useful life.

 

Contingent Consideration Liability.The estimated fair value of the contingent consideration liability, initially measured and recorded on the acquisition date, is considered to be a Level 3 instrument and is reviewed quarterly, or whenever events or circumstances occur that indicate a change in fair value. The contingent consideration liability is recorded at fair value at the end of each reporting period.

 

Legal Proceedings.From time to time, we may be a party to legal proceedings in the course of our business. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Company recordsWe record accruals for contingencies to the extent that the occurrence of the contingency is probable and the amount of liability is reasonably estimable. If the reasonable estimate of liability is within a range of amounts and some amount within the range appears to be a better estimate than any other, then the Company recordswe record that amount as an accrual. If no amount within the range is a reasonable estimate, then the Company recordswe record the lowest amount as an accrual. Loss contingencies that are assessed as remote are not reported in the financial statements, or in the notes to the consolidated financial statements.

 

Item7A.  Quantitative and Qualitative Disclosures About Market Risk

 

Our primary investment objective is to preserve principal. Our money market fundsfunds have interest rates that are variable and totaled $137.3$87.2 million at December 31, 2016.2017. As a result, we do not believe that these investment balances have a material exposure to interest-rate risk.

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The majority of our business is conducted in U.S. dollars. However, we do conduct certain transactions in other currencies, including Euros, British Pounds, Swiss Francs, and Swedish Krona. Historically, fluctuations in foreign currency exchange rates have not materially affected our consolidated results of operations and during the years ended December 31, 2017, 2016, 2015, and 2014,2015, our consolidated results of operations were not materially affected by fluctuations in foreign currency exchange rates.

 

Item8.  Financial Statements and Supplementary Data

 

See page F-1,Index to Consolidated Financial Statements.

 

Item9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

 

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Item9A.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC’sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have a Disclosure Committee consisting of members of our senior management which monitors and implements our policy of disclosing material information concerning the Company in accordance with applicable law.

 

As required by SEC Rule 13a-15(e)13a-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our CEO and CFO concluded that our current disclosure controls and procedures, as designed and implemented, were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) during our fiscal quarter ended December 31, 20162017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ManagementManagement’s’s Report on Internal Control Over Financial Reporting

 

Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is responsible for establishing and maintaining adequate internal control over financial reporting which includes policies and procedures that:

 

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;

●	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of management and directors; and

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●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management has used the framework setset forth in the report entitledInternal ControlControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Management has concluded that our internal control over financial reporting was effective as of December 31, 2016.2017.

 

The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as of December 31, 20162017 as stated in their report which is provided below.

 

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Report of Independent Registered Public Accounting Firm

 

TheTo the Stockholders and the Board of Directors and Stockholders of Progenics Pharmaceuticals, Inc.

 

Opinion on the Internal Control over Financial Reporting

We have audited Progenics Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)“COSO criteria”). In our opinion, Progenics Pharmaceuticals, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of Progenics Pharmaceuticals, Inc. as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 8, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

A company’scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Progenics Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Progenics Pharmaceuticals, Inc. as of December 31, 2016 and 2015 and the related consolidated statements of operation, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 of Progenics Pharmaceuticals, Inc. and our report dated March 9, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

 

Hartford,Stamford, Connecticut

March 9, 2017

Item9B.  Other Information8, 2018

 

None.

Item 9B. Other Information

None.

 

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PARTIII      

 

The information required by the Form 10-K Items listed in the following table will be included under the respective headings specified for such Items in our definitive proxy statement for our 20172018 Annual Meeting of Stockholders to be filed with the SEC no later than 120 days after December 31, 2016,2017, which proxy statement is incorporated herein by reference:

 

Item of Form 10-K	Location in 20178 Proxy Statement
Item10.Directors, Executive Officers and Corporate Governance	Election of Directors.
	Executive and Other Officers.
	Corporate Governance.
	Code of Business Ethics and Conduct.*
	Section 16(a) Beneficial Ownership Reporting and Compliance.
	*The full text of our Code of Business Ethics and Conduct is available on our website (www.progenics.com).
Item11.Executive Compensation	Executive Compensation.
	Compensation Committee Report.
	Pay Ratio Disclosure.
	Compensation Committee Interlocks and Insider Participation.
Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Equity Compensation Plan Information. Security Ownership of Certain Beneficial Owners and Management.
Item13.Certain Relationships and Related Transactions, and Director Independence	Certain Relationships and Related Transactions. Affirmative Determinations Regarding Director Independence and Other Matters.
Item 14.14.Principal Accounting Fees and Services	Fees Billed for Services Rendered by our Independent Registered Public Accounting Firm.
	Pre-approval of Audit and Non-Audit Services by the Audit Committee.

 

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PARTIV      

 

Item15. Exhibits, Financial Statement Schedules

 

The following documents or the portions thereof indicated are filed as a part of this Annual Report.

 

(a)

Documents filed as part of this Annual Report:

 

(1)

Consolidated Financial Statements of Progenics Pharmaceuticals, Inc.:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets at December 31, 20162017 and 20152016

 

Consolidated Statements of Operations for the years ended December 31, 2017, 2016 2015 and 20142015

 

Consolidated Statements of Comprehensive (Loss) Income (Loss) for the years ended December 31, 2017, 2016 2015 and 20142015

 

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 2015 and 20142015

 

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 2015 and 20142015

 

Notes to Consolidated Financial Statements

 

((2)2)

Financial Statement Schedules

 

Schedule II – Valuation and Qualifying Accounts

 

FinancialFinancial statement schedules referred to in Item 12-01 of Regulation S-X and not listed above are inapplicable and therefore have been omitted.

 

((3)3)

Item 601 Exhibits

 

ExhibitsExhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately following the signature page of this Report and incorporated herein by reference.

 

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PROGENICS PHARMACEUTICALS, INC.

INDEXTO CONSOLIDATED FINANCIAL STATEMENTS

 

 

	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 2016 and 2015	F-3F-3
Consolidated Statements of Operations for the years ended December 31, 2016, 2015, and 2014	F-4F-4
Consolidated Statements of Comprehensive (Loss) Income (Loss) for the years ended December 31, 2016, 2015, and 2014	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015, and 2014	F-6F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014	F-7F-7
Notes to Consolidated Financial Statements	F-8F-8

 

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Reportof Independent Registered Public Accounting Firm

 

TheTo the Stockholders and the Board of Directors and Stockholders of Progenics Pharmaceuticals, Inc.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Progenics Pharmaceuticals, Inc. (the “Company”) as of December 31, 20162017 and 2015 and2016, the related consolidated statements of operations, comprehensive (loss) income, (loss), stockholders'stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included2017, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Progenics Pharmaceuticals, Inc.the Company at December 31, 20162017 and 20152016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects information set forth therein.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Progenics Pharmaceuticals, Inc.'sthe Company’s internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 9, 20178, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

Hartford,

We have served as the Company’s auditor since 2012.

Stamford, Connecticut

March 9, 20178, 2018

 

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PROGENICS PHARMACEUTICALS, INC.INC.

 

CONSOLIDATEDBALANCE SHEETS

((InIn thousands, except per share data)data)

 

		December 31,								December 31,
		2016				2015				2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	138,909			$	74,103			$	90,642			$	138,909
Accounts receivable, net			4,864				3,543				3,972				4,864
Other current assets			4,328				5,639				2,256				4,328
Total current assets			148,101				83,285				96,870				148,101
Property and equipment, net			4,760				2,407				4,122				4,760
Intangible assets, net			30,581				30,793				30,369				30,581
Goodwill			13,074				13,074				13,074				13,074
Other assets			2,470				1,692				1,522				2,470
Total assets		$	198,986			$	131,251			$	145,957			$	198,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	567			$	332			$	3,359			$	567
Accrued expenses			15,764				9,212				9,555				15,790
Other current liabilities			26				185
Current portion of debt, net											2,445				-
Total current liabilities			16,357				9,729				15,359				16,357
Long-term debt, net											47,242				49,453
Contingent consideration liability			14,200				18,800				16,800				14,200
Deferred tax liability			13,010				11,199				1,575				13,010
Long-term debt, net			49,453				-
Other liabilities			1,204				862				1,528				1,204
Total liabilities			94,224				40,590				82,504				94,224
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.001 par valueAuthorized - 20,000 shares; issued and outstanding - none			-				-
Common stock, $0.0013 par valueAuthorized - 160,000 shares; issued - 70,390 shares in 2016 and 70,146 shares in 2015			92				91
Stockholders’ equity:
Preferred stock, $0.001 par value Authorized - 20,000 shares; issued and outstanding - none											-				-
Common stock, $0.0013 par value Authorized - 160,000 shares; issued - 71,645 shares in 2017 and 70,390 shares in 2016											93				92
Additional paid-in capital			598,069				594,511				609,829				598,069
Treasury stock at cost, 200 shares of common stock			(2,741	)			(2,741	)			(2,741	)			(2,741	)
Subscription receivable											(2,109	)			-
Accumulated other comprehensive loss			(85	)			(26	)			(33	)			(85	)
Accumulated deficit			(490,573	)			(501,379	)			(541,586	)			(490,573	)
Total Progenics stockholders' equity			104,762				90,456
Noncontrolling interests			-				205
Total stockholders’ equity			104,762				90,661
Total liabilities and stockholders’ equity		$	198,986			$	131,251
Total stockholders’ equity											63,453				104,762
Total liabilities and stockholders’ equity										$	145,957			$	198,986

 

The accompanying notes are an integral part of the financial statements.

 

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PROGENICS PHARMACEUTICALS, INC.INC.

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(InIn thousands, except per share data) data)

 

		Years Ended December 31,												Years Ended December 31,
		2016				2015				2014				2017				2016				2015
Revenue:
Royalty income		$	10,295			$	6,608			$	3,101			$	10,965			$	10,295			$	6,608
License revenue			59,081				1,955				41,196				690				59,081				1,955
Other revenue			53				113				80				43				53				113
Total revenue			69,429				8,676				44,377				11,698				69,429				8,676
Operating expenses:
Research and development			37,569				28,196				28,592				42,589				37,569				28,196
General and administrative			23,356				18,184				15,489				24,909				23,356				18,184
Intangible impairment charges			-				-				2,676
Change in contingent consideration liability			(4,600	)			1,600				1,500				2,600				(4,600	)			1,600
Total operating expenses			56,325				47,980				48,257				70,098				56,325				47,980
Other operating income			-				-				7,250
Operating (loss) income															(58,400	)			13,104				(39,304	)
Operating income (loss)			13,104				(39,304	)			3,370
Other income (expense):
Other (expense) income:
Interest (expense) income, net			(493	)			52				51				(4,285	)			(527	)			52
Other expense, net			(34	)			-				-
Total other (expense) income			(527	)			52				51				(4,285	)			(527	)			52
Income (loss) before income tax (expense) benefit			12,577				(39,252	)			3,421
(Loss) income before income tax (expense) benefit															(62,685	)			12,577				(39,252	)
Income tax (expense) benefit			(1,844	)			133				989
Income tax benefit (expense)															11,672				(1,844	)			133
Net income (loss)			10,733				(39,119	)			4,410
Net (loss) income															(51,013	)			10,733				(39,119	)
Net loss attributable to noncontrolling interests			(73	)			(7	)			-				-				(73	)			(7	)
Net income (loss) attributable to Progenics		$	10,806			$	(39,112	)		$	4,410
Net (loss) income attributable to Progenics														$	(51,013	)		$	10,806			$	(39,112	)
Net income (loss) per share attributable to Progenics - basic		$	0.15			$	(0.56	)		$	0.06
Net (loss) income per share attributable to Progenics - basic														$	(0.73	)		$	0.15			$	(0.56	)
Weighted-average shares - basic			70,003				69,716				68,185				70,284				70,003				69,716
Net income (loss) per share attributable to Progenics - diluted		$	0.15			$	(0.56	)		$	0.06
Net (loss) income per share attributable to Progenics - diluted														$	(0.73	)		$	0.15			$	(0.56	)
Weighted-average shares - diluted			70,155				69,716				68,243				70,284				70,155				69,716

 

The accompanying notes are an integral part of the financial statements.

 

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PROGENICS PHARMACEUTICALS, INC.INC.

 

CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)

((InIn thousands)

 

		Years Ended December 31,
		2016				2015				2014
Net income (loss)		$	10,733			$	(39,119	)		$	4,410
Other comprehensive (loss) income:
Foreign currency translation adjustments			(62	)			(26	)			-
Net change in unrealized loss on auction rate securities			-				-				192
Total other comprehensive (loss) income			(62	)			(26	)			192
Comprehensive income (loss)			10,671				(39,145	)			4,602
Comprehensive loss attributable to noncontrolling interests			(73	)			(7	)			-
Comprehensive income (loss) attributable to Progenics		$	10,744			$	(39,138	)		$	4,602

		Years Ended December 31,
		2017				2016				2015
Net (loss) income		$	(51,013	)		$	10,733			$	(39,119	)
Other comprehensive loss:
Foreign currency translation adjustments			52				(62	)			(26	)
Comprehensive (loss) income			(50,961	)			10,671				(39,145	)
Comprehensive loss attributable to noncontrolling interests			-				(73	)			(7	)
Comprehensive (loss) income attributable to Progenics		$	(50,961	)		$	10,744			$	(39,138	)

 

The accompanying notes are an integral part of the financial statements.

 

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PROGENICS PHARMACEUTICALS, INC.INC.

 

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

((InIn thousands)

 

																		Accumulated																				Common Stock								Common Stock Subscribed								Additional								Accumulated  Other								Treasury Stock												Total
		Common Stock								Additional								Other				Treasury Stock												Total				Number								Number								Paid-in				Accumulated				Comprehensive				Subscription				Number								Noncontrolling				Stockholders'
		Number								Paid-in				Accumulated				Comprehensive				Number								Noncontrolling				Stockholders’				of Shares				Par Value				of Shares				Par Value				Capital				Deficit				Loss				Receivable				of Shares				Cost				Interests				Equity
		of Shares				Par Value				Capital				Deficit				Loss				of Shares				Cost				Interests				Equity
Balance at December 31, 2013			61,025			$	79			$	548,510			$	(466,677	)		$	(192	)			(200	)		$	(2,741	)		$	-			$	78,979
Net income			-				-				-				4,410				-				-				-				-				4,410
Other comprehensive income			-				-				-				-				192				-				-				-				192
Stock-based compensation expense			-				-				3,523				-				-				-				-				-				3,523
Sale of common stock in public offering, net of underwriting discounts and commissions($2,415) and offering expenses ($376)			8,750				12				37,447				-				-				-				-				-				37,459
Acquisition of subsidiary escrow shares returned			(19	)			-				(82	)			-				-				-				-				-				(82	)
Exercise of stock options			77				-				428				-				-				-				-				-				428
Balance at December 31, 2014			69,833			$	91			$	589,826			$	(462,267	)		$	-				(200	)		$	(2,741	)		$	-			$	124,909				69,833			$	91				-			$	-			$	589,826			$	(462,267	)		$	-			$	-				(200	)		$	(2,741	)		$	-			$	124,909
Net loss			-				-				-				(39,112	)			-				-				-				(7	)			(39,119	)			-				-				-				-				-				(39,112	)			-				-				-				-				(7	)			(39,119	)
Acquisition of subsidiary			-				-				-				-				-				-				-				504				504				-				-				-				-				-				-				-				-				-				-				504				504
Purchase of noncontrolling interests			-				-				-				-				-				-				-				(292	)			(292	)			-				-				-				-				-				-				-				-				-				-				(292	)			(292	)
Other comprehensive loss			-				-				-				-				(26	)			-				-				-				(26	)			-				-				-				-				-				-				(26	)			-				-				-				-				(26	)
Stock-based compensation expense			-				-				2,948				-				-				-				-				-				2,948				-				-				-				-				2,948				-				-				-				-				-				-				2,948
Exercise of stock options			313				-				1,737				-				-				-				-				-				1,737				313				-				-				-				1,737				-				-				-				-				-				-				1,737
Balance at December 31, 2015			70,146			$	91			$	594,511			$	(501,379	)		$	(26	)			(200	)		$	(2,741	)		$	205			$	90,661				70,146			$	91				-			$	-			$	594,511			$	(501,379	)		$	(26	)		$	-				(200	)		$	(2,741	)		$	205			$	90,661
Net income (loss)			-				-				-				10,806				-				-				-				(73	)			10,733
Net income																																							-				-				-				-				-				10,806				-				-				-				-				(73	)			10,733
Purchase of noncontrolling interests			-				-				(239	)			-				-				-				-				(129	)			(368	)			-				-				-				-				(239	)			-				-				-				-				-				(129	)			(368	)
Foreign currency translation adjustment			-				-				-				-				(59	)			-				-				(3	)			(62	)			-				-				-				-				-				-				(59	)			-				-				-				(3	)			(62	)
Stock-based compensation expense			-				-				2,457				-				-				-				-				-				2,457				-				-				-				-				2,457				-				-				-				-				-				-				2,457
Exercise of stock options			244				1				1,340				-				-				-				-				-				1,341				244				1				-				-				1,340				-				-				-				-				-				-				1,341
Balance at December 31, 2016			70,390			$	92			$	598,069			$	(490,573	)		$	(85	)			(200	)		$	(2,741	)		$	-			$	104,762				70,390			$	92				-			$	-			$	598,069			$	(490,573	)		$	(85	)		$	-				(200	)		$	(2,741	)		$	-			$	104,762
Net loss																																							-				-				-				-				-				(51,013	)			-				-				-				-				-				(51,013	)
Foreign currency translation adjustment																																							-				-				-				-				-				-				52				-				-				-				-				52
Return of purchase premium for noncontrolling interests																																							-				-				-				-				15				-				-				-				-				-				-				15
Stock-based compensation expense																																							-				-				-				-				4,142				-				-				-				-				-				-				4,142
Exercise of stock options																																							80				-				-				-				469				-				-				-				-				-				-				469
Issuance of common stock in connection with at-the-market offering, net of commissions and issuance costs																																							855				1				-				-				5,025				-				-				-				-				-				-				5,026
Subscription of common stock in connection with at-the-market offering, net of commissions																																							320				-				-				-				2,109				-				-				(2,109	)			-				-				-				-
Balance at December 31, 2017																																							71,645			$	93				-			$	-			$	609,829			$	(541,586	)		$	(33	)		$	(2,109	)			(200	)		$	(2,741	)		$	-			$	63,453

 

The accompanying notes are an integral part of the financial statements.

 

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PROGENICS PHARMACEUTICALS, INC.INC.

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(In thousands)

 

		Years Ended December 31,												Years Ended December 31,
		2016				2015				2014				2017				2016				2015
Cash flows from operating activities:
Net income (loss)		$	10,733			$	(39,119	)		$	4,410
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net (loss) income														$	(51,013	)		$	10,733			$	(39,119	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation expense															4,142				2,457				2,948
Depreciation and amortization			2,078				565				545				1,121				2,078				565
Stock-based compensation expense			2,457				2,948				3,523
Gain on sale of fixed assets			(296	)			(2	)			(110	)			10				(296	)			(2	)
Intangible impairment charge			-				-				2,676
Paid in-kind interest			765				-				-				(13	)			765				-
Non-cash interest expense			38				-				-				247				38				-
Deferred income tax			1,811				(133	)			(989	)			(11,435	)			1,811				(133	)
Change in fair value of contingent consideration liability			(4,600	)			1,600				1,500				2,600				(4,600	)			1,600
Acqusition of subsidiary escrow shares returned			-				-				(82	)
Changes in assets and liabilities:
Accounts receivable			(1,322	)			(3,415	)			2,770				892				(1,322	)			(3,415	)
Other current assets			1,314				(3,058	)			(572	)			2,046				1,314				(3,058	)
Other assets			(778	)			(1,535	)			-				947				(778	)			(1,535	)
Accounts payable			243				(202	)			(435	)			2,779				243				(202	)
Accrued expenses			6,581				2,354				493				(6,274	)			6,581				2,354
Deferred tax and other current liabilities			(158	)			(60	)			-				-				(158	)			(60	)
Other liabilities			343				(80	)			(3	)			323				343				(80	)
Net cash provided by (used in) operating activities			19,209				(40,137	)			13,726
Net cash (used in) provided by operating activities															(53,628	)			19,209				(40,137	)
Cash flows from investing activities:
Acquisition of subsidiary, net of cash acquired			-				(6,202	)			-				-				-				(6,202	)
Purchases of property and equipment			(4,286	)			(370	)			(714	)			(269	)			(4,286	)			(370	)
Proceeds from sale of fixed assets			347				48				143				37				347				48
Proceeds from redemption of auction rate securities			-				-				2,400
Net cash (used in) provided by investing activities			(3,939	)			(6,524	)			1,829
Net cash used in investing activities															(232	)			(3,939	)			(6,524	)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt			48,650				-				-				-				48,650				-
Net proceeds from public offering of common stock			-				-				37,459
Net proceeds from issuance of common stock in connection with at-the-market offering															5,026				-				-
Proceeds from exercise of stock options			1,340				1,737				428				469				1,340				1,737
Purchase of noncontrolling interests			(368	)			(292	)			-
Return of estimated interest payment for noncontrolling interest															15				(368	)			(292	)
Net cash provided by financing activities			49,622				1,445				37,887				5,510				49,622				1,445
Effect of currency rate changes on cash and cash equivalents			(86	)			17				-				83				(86	)			17
Net increase (decrease) in cash and cash equivalents			64,806				(45,199	)			53,442
Net (decrease) increase in cash and cash equivalents															(48,267	)			64,806				(45,199	)
Cash and cash equivalents at beginning of period			74,103				119,302				65,860				138,909				74,103				119,302
Cash and cash equivalents at end of period		$	138,909			$	74,103			$	119,302			$	90,642			$	138,909			$	74,103
Noncash financing activity
Subscription receivable														$	2,109			$	-			$	-

 

The accompanying notes are an integral part of the financial statements.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TO TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

1. Organization and Business

 

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: 1)1) therapeutic agents designed to precisely target cancer (AZEDRA^®, 1095, and 1095)PSMA TTC), 2)2) PSMA-targeted imaging agents for prostate cancer (1404(1404 and PyL^TM), and 3)3) imaging analysis tools.technology.

 

WIn February 2011, wee 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”)). In September 2014 RELISTOR received an expanded approval from the U.S. Food and Drug Administration ("FDA"(“FDA”) for the treatment of OIC in patients taking opioids for chronic non-cancer pain. On pain, and in July 19, 2016,RELISTOR Tablets were approved by the FDA approved RELISTOR Tablets for the treatment of OIC in adults with chronic non-cancer pain,pain.

On 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 action date of April 30, 2018 under the Prescription Drug User Fee Act (“PDUFA”). We are developing AZEDRA as a treatment for patients with malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma, which we received a $50.0 million development milestone payment from Valeantare rare neuroendocrine tumors. There are currently no approved therapies in the third quarter of 2016. 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 no assurance that our NDA will be approved.

We have partnered other internally-developed or acquired compounds and technologies with third parties. We continue to considerin 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, and sublicense revenue-sharing payments from Valeant relating to RELISTOR.and Bayer AG (“Bayer”). Royalty and further milestone payments from RELISTORValeant or Bayer depend on success in development and commercialization, which is dependent on many factors, such as Valeant’sValeant 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 RELISTOR.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 ownedwholly-owned subsidiaries. All of our U.S. operations are presently conducted at our headquarters in New York, and EXINI’sthe 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

 

Liquidity

At December 31, 2016,2017, we had $138.9$90.6 million in cash and cash equivalents, an increasea decrease of $64.8$48.3 million from $74.1$138.9 million at December 31, 2015. 2016. We expect that this amount will be sufficient to fund operations as currently anticipated beyond one year from the filing date of this Annual Report on Form 10-K.10-K. 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.

During 2014, we raised $37.5 million in an underwritten public offeringthe fourth quarter of 8.75 million shares of common stock at a public offering price of $4.60 per share. During 2016,2017, we raised net proceeds of $48.7$5.0 million in at-the-market transactions under a controlled equity offering sales agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”). (See Note10. Stockholders’ Equity for additional information). During 2016, we raised net proceeds of $48.7 million through a royalty monetization transaction (SeeNote 9. Long-Term Debt, Net for additional information). We expect that we may continue to incur operating losses for the foreseeable future.

 

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the U.S. (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates, including but not limited to those related to collectability of receivables, intangible assets and contingencies. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in the operating results. Actual results could differ from those estimates. Certain expense amounts have been combined in prior periods’ financial statements to conform to the current year presentation.

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Progenics as well as its wholly-owned and controlled subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

In December 2015, we commenced a judicial process in Sweden for acquiring the remaining shares of EXINI. On December 8, 2016, a Swedish arbitral tribunal awarded us advanced title to the remaining shares of EXINI and, as of that date, EXINI became a wholly-owned subsidiary with 100% of the voting shares owned by us. In connection with the acquisition of the remaining shares of EXINI, in December 2016, we paid $368 thousand to the minority interest shareholders for the original purchase price and estimated interest, of which a net amount of $15 thousand was returned in 2017.

 

Foreign Currency Translation

 

Each of ourOur international subsidiaries generally considersconsider 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 income (loss),loss, and the cumulative effect is included in the stockholders'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 years ended December 31, 2016.2017, 2016, and 2015.

 

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 from all sources based on the provisions of the U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No.104 (“SAB 104”) and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605 (Topic 605,Revenue Recognition). Under ASC 605, delivered items are separate units of accounting, provided (i) the delivered items have value to a collaborator on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control. A separate update to ASC 605 provides guidance on the criteria that should be met when determining whether the milestone method of revenue recognition is appropriate.

 

If we are involved in a steering or other committee as part of a multiple-deliverable arrangement, we assess whether our involvement constitutes a performance obligation or a right to participate. For those committees that are deemed obligations, we will evaluate our participation along with other obligations in the arrangement and will attribute revenue to our participation through the period of our committee responsibilities. We recognize revenue for payments that are contingent upon performance solely by our collaborator immediately upon the achievement of the defined event if we have no related performance obligations. Reimbursement of costs is recognized as revenue provided the provisions of ASC 605 are met, the amounts are determinable and collection of the related receivable is reasonably assured.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue. Amounts not expected to be recognized within one year of the balance sheet date are classified as long-term.

 

Royalty revenue is recognized in the period the sales occur, provided the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no remaining performance obligations under the arrangement providing for the royalty. Royalty loss is recognized based upon reported sales deductions in excess of gross sales resulting in net sales (losses) and is recognized in the period net sales (losses) occur. Royalty loss is classified in royalty income in the consolidated statements of operations and the related accrued royalty loss liability is classified in accounts payable and accrued expenses in the consolidated balance sheets.

 

During the past three years, we also recognized revenue from sales of research reagents.

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Tablereagents, which is reflected as other revenue in our consolidated statements of Contents

PROGENICS PHARMACEUTICALS, INC.operations.

 

DNOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted) 

Under the agreement with Bayer, we are entitled to receive an upfront payment of $4.0 million and up to $49.0 million in potential clinical and regulatory development milestones. We are also entitled to single digit royalties on net sales, and potential net sales milestone payments up to an aggregate total of $130.0 million. In uring 2016, we recognized license revenue of $7.0$50.7 million under the license agreement with Valeant, of which $4.0$50.0 million related to the achievement of a development milestone (FDA approval of RELISTOR tablets) and $0.7 million related to our share of the upfront payment Valeant received from a Canadian-based distributor of RELISTOR. In addition, during 2016, we recognized license revenue of $7.0 million under the license agreement with Bayer, of which $4.0 million related to the upfront payment and $3.0$3.0 million related to the achievement of a preclinical development milestones. We are eligible for future milestone and royalty payments under both license agreements with Valeant and Bayer.

 

During 2015, we recognized $1.5$1.5 million milestone revenue under our agreement with CytoDyn Inc. as a result of CytoDyn’s dosing of the first patient in its Phase 2B/3 clinical trial of PRO 140. We are eligible for future milestone and royalty payments.

 

During 2014, we recognized $40.0 million milestone revenue from Valeant upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients and $1.0 million milestone revenue from FUJIFILM RI Pharma Co., Ltd. (“Fuji”) upon execution of the first contract by Fuji with an investigation site for a Phase 1 trial of 1404 in Japan.

In 2014, Valeant entered into an agreement with Lupin Limited for distribution of RELISTOR in Canada. During the second quarter of 2016, we recognized license revenue of $720 thousand for our share of the upfront payment Valeant received from Lupin pursuant to the distribution agreement.

Research and Development Expenses

 

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries; payroll taxes,taxes; employee benefits, materials, supplies,benefits; materials; supplies; maintenance of research equipment,equipment; costs related to research collaboration and licensing agreements,agreements; the purchase of in-process research and development,development; the cost of services provided by outside contractors, including services related to our clinical trials,trials; and the full cost of manufacturing drug for use in research, pre-clinical development, and clinical trials. All costs associated with research and development are expensed as incurred.

 

At each period end, we evaluate the accrued expense balance related to these activities based upon information received from the suppliers and estimated progress towards completion of the research or development objectives to ensure that the balance is reasonably stated. Such estimates are subject to change as additional information becomes available.

 

Patents

 

As a result of research and development efforts conducted by us, we have applied, or are applying, for a number of patents to protect proprietary inventions. All costs associated with patents are expensed as incurred.

 

Net Income (Loss) IncomePer Share

 

WeWe prepare earnings per share (EPS)(“EPS”) data in accordance with ASC 260 (Topic 260,Earnings Per Share). Basic net (loss) income (loss) per share amounts have been computed by dividing net (loss) income (loss) attributable to Progenics by the weighted-average number of common shares outstanding during the period. For 2017 and 2015, we reported net losses and, therefore, potential common shares, and amounts of unrecognized compensation expense and windfall tax benefits have been excluded from diluted net loss per share since theytheir inclusion would be anti-dilutive. For 2016, and 2014, we reported net income, and the computation of diluted earnings per share is based upon the weighted-average number of our common shares and dilutive effect, determined using the treasury stock method, of potential common shares outstanding including amounts of unrecognized compensation expense. Shares to be issued upon the assumed conversion of the contingent consideration liability are excluded from the diluted earnings per share calculation, if performance conditions have not been met.

Comprehensive (Loss) Income

Comprehensive (loss) income represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive (loss) income includes net (loss) income adjusted for the changes in foreign currency translation adjustment. The disclosures required by ASC 220 (Topic 220,Comprehensive Income) for 2017,2016, and 2015 have been included in the consolidated statements of comprehensive (loss) income. There was no income tax expense/benefit allocated to any component of other comprehensive (loss) income (see Note 10. Stockholders’ Equity for additional information).

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

Concentrations of Credit Risk

 

Financial instruments which potentially subject Progenicsus to concentrations of risk consist principally of cash, cash equivalents, and receivables. We invest our excess cash in money market funds, which are classified as cash and cash equivalents. We have established guidelines that relate to credit quality, diversification and maturity and that limit exposure to any one issue of securities. We hold no collateral for these financial instruments.

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

Cash and Cash Equivalents

 

We consider all highly liquid investments which have maturities of three months or less, when acquired, to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Cash and cash equivalents subject us to concentrations of credit risk. At December 31, 2016 2017 and 2015,2016, we had invested approximately $137.3$87.2 million and $68.1$137.3 million, respectively, in cash equivalents in the form of money market funds with one majortwo investment companycompanies and held approximately $1.6$3.4 million and $6.0$1.6 million, respectively, in threetwo commercial banks.

 

Accounts Receivable

 

We estimate the level of accounts receivable which ultimately will be uncollectable based on a review of specific receivable balances, industry experience and the current economic environment. We reserve for affected accounts receivable an allowance for doubtful accounts, which at accounts. At December 31, 2015 and 2014 was $10 thousand. During 2016, 2017, we wrote-off the uncollectable accounts receivable balance of $10 thousand against thehad no allowance for doubtful accounts. At December 31, 2016, we had no allowance for doubtful accounts.

 

In-Process Research and Development Other, Other Identified Intangible Assets and Goodwill

 

The fair values of in-process research and development (“(“IPR&D”) and other identified intangible assets acquired in business combinations are capitalized. The Company utilizes the “income method”, which applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected sales revenues and estimated costs or “replacement costs”, whichever is greater. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each IPR&D project and other identified intangible assets independently. IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. Other identified intangible assets are amortized over the relevant estimated useful life. The IPR&D assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment and any impairment loss is recognized in our consolidated statements of operations.

 

Goodwill represents excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized, but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. The Company determines whether goodwill may be impaired by comparing the fair value of the reporting unit (the Company has determined that it has only one reporting unit for this purpose), calculated as the product of shares outstanding and the share price as of the end of a period, to its carrying value (for this purpose, the Company’s total stockholders’ equity). No goodwill impairment has been recognized as of December 31, 2016 2017 or 2015.2016.

 

Fair Value Measurements

 

In accordance with ASC 820 (Topic 820,Fair Value Measurements and Disclosures), we use a three-levelthree-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). We assign hierarchy levels to our contingent consideration liability arising from the Molecular Insight Pharmaceuticals, Inc. (“Molecular Insight”) acquisition based on our assessment of the transparency and reliability of the inputs used in the valuation. ASC 820 defines the three hierarchy levels as:

 

●

Level 1 - Valuations based on unadjusted quoted market prices in active markets for identical securities.securities.

 

●

Level 2 - Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets at the measurement date, quoted prices in markets that are not active or other inputs that are observable, either directly or indirectly.indirectly.

 

●

Level 3 - Valuations based on unobservable inputs that are significant to the overall fair value measurement, which as noted above involve management judgment.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

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:

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.

Recurring Fair Value Measurements

 

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 December 31, 2016 2017 and 2015.2016.

 

The fair value of the contingent consideration liability represents future potential milestone payments related to the Molecular Insight acquisition. The fair value of the contingent consideration liability is categorized as a Level 3 instrument, as displayed in Note 4. We record the contingent consideration liability at fair value with changes in estimated fair values recorded in the consolidated statements of operations. We reassess the fair value of the contingent consideration at each reporting period. The contingent consideration liability results from probability adjusted discounted cash flows and Monte Carlo simulation models which include estimates of milestone payments to former Molecular Insight stockholders under the acquisition agreement.

 

Nonrecurring Fair Value Measurements

 

OurOur non-financial assets, such as intangible assets and property and equipment, are measured and recorded at fair value on the acquisition date, and if indicators of impairment exist, we assess recoverability by measuring the amount of any impairment by comparing the carrying value of the asset to its then-current estimated fair value (for intangible assets) or to market prices for similar assets (for property and equipment). If the carrying value is not recoverable we record an impairment charge in our consolidated statements of operations. No impairments occurred for the year ended December 31, 2016. We reassessed the value of the indefinite lived intangible assets and recorded a non-cash charge to earnings of $2.7 million in 2014. This impairment was the result of changes in the Level 3 assumptions as follows: the timing of beginning cash inflows from 2021 to 2024 and a decrease in discount rate from 20% to 13.5% for the 1095 intangible asset, in addition to the third quarter 2014 impairments of the ONALTA^TM indefinite-lived and finite-lived intangible assets, resulting from decreased probabilities of success.2017.

 

OtherOther current assets are comprised of prepaid expenses, interest, other receivables, and, in the 2016 balance, amount held in escrow for former employee litigation, which is restricted, and other receivablesall of $4.3 million and $5.6 million at December 31, 2016 and 2015, respectively, which are expected to be settled within one year. Restricted cash, included in other assets, of $2.0 million and $1.7 million at December 31, 2016 and 2015, respectively, represents collateral for letters of credit securing a lease obligationsobligation, and, in the 2016 balance, advanced title to the remaining shares held by noncontrolling interests.minority interests of EXINI. We believe the carrying value of these assets approximates fair value and are considered Level 1 assets.

 

Fixed Assets

 

Leasehold improvements, furniture and fixtures, and equipment are stated at cost. Furniture, fixtures and equipment are depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the life of the lease or of the improvement, whichever is shorter. Costs of construction of long-lived assets are capitalized but are not depreciated until the assets are placed in service.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in operations. The estimated useful lives of fixed assets are as follows:

 

Computer equipment (years)				3
Machinery and equipment (years)			5	-	7
Furniture and fixtures (years)				5
Leasehold improvements			Earlier of life of improvement or lease

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Computer equipment (in years)		3
Machinery and equipment (in years)	5	-	7
Furniture and fixtures (in years)		5
Leasehold improvements (in years)	Earlier of life of improvement or lease

 

PROGENICS PHARMACEUTICALS, INC.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

Deferred Lease Liability and Incentive

 

Our lease agreements include fixed escalations of minimum annual lease paymentspayments and we recognize rental expense on a straight-line basis over the lease terms and record the difference between rent expense and current rental payments as deferred lease liability. Deferred lease incentive includes a construction allowance from our landlord which is amortized as a reduction to rental expense on a straight-line basis over the lease term. As of December 31, 2016 2017, and 2015,2016, our consolidated balance sheets include the following:

 

		2016				2015				2017				2016
Other current liabilities:
Deferred lease incentive		$	26			$	115			$	26			$	26
Other liabilities:
Deferred lease liability		$	876			$	402			$	1,225			$	876
Deferred lease incentive		$	328			$	460			$	303			$	328

 

Income Taxes

 

We account for income taxes in accordance with the provisions of ASC 740 (Topic (Topic 740,Income Taxes), which requires that we recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (temporary differences) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. A valuation allowance is established for deferred tax assets for which realization is uncertain.

 

In accordance with ASC 718 (Topic (Topic 718,Compensation – Stock Compensation) and ASC 505 (Topic 505,Equity), we have made a policy decision related to intra-period tax allocation, to account for utilization of windfall tax benefits based on provisions in the tax law that identify the sequence in which amounts of tax benefits are used for tax purposes (i.e., tax law ordering). We adopted Accounting Standards Update (“ASU”) No.2016-09,Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”) on January 1, 2017, which requires that all excess tax benefits and tax deficiencies during the period be recognized in income (rather than in equity) on a prospective basis.

 

Uncertain tax positions are accounted for in accordance with ASC 740, which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that we have taken or expect to take on a tax return. ASC 740 applies to income taxes and is not intended to be applied by analogy to other taxes, such as sales taxes, value-add taxes, or property taxes. We review our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our ASC 740 liability, if any, or require an additional liability to be recorded. Such events may be the resolution of issues raised by a taxing authority, expiration of the statute of limitations for a prior open tax year or new transactions for which a tax position may be deemed to be uncertain. Those positions, for which management's assessment is that there is more than a 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to the measurement criteria of ASC 740. We record the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. Any ASC 740 liabilities for which we expect to make cash payments within the next twelve months are classified as "short term." In the event that we conclude that we are subject to interest and/or penalties arising from uncertain tax positions, we will record interest and penalties as a component of income taxes (seeNote 13. Income Taxes for additional information).

 

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued

(amounts in thousands, except per share amounts or as otherwise noted)

Risks and Uncertainties

 

WeTo date, we have to date relied principally on external funding, license agreements with Valeant, Bayer and others, out-licensing and asset sale arrangements, and royalty and product revenue to finance our operations. There can be no assurance that our research and development will be successfully completed, that any products developed will obtain necessary marketing approval by regulatory authorities or that any approved products will be commercially viable. In addition, we operate in an environment of rapid change in technology, and we are dependent upon satisfactory relationships with our partners and the continued services of our current employees, consultants and subcontractors. We are also dependent upon Valeant and Fuji fulfilling their manufacturing obligations, either on their own or through third-partythird-party suppliers. For 2017,2016, 2015, and 2014,2015, the primary sources of our revenues were royalty and milestone payments. There can be no assurance that such revenues will continue. Substantially all of our accounts receivable at December 31, 2016 2017 and 20152016 were from the above-named sources.

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) includes net income (loss) adjusted for the changes in foreign currency translation adjustment and net change in unrealized loss on auction rate securities. The disclosures required by ASC 220 (Topic 220,Comprehensive Income) for 2016, 2015, and 2014 have been included in the consolidated statements of comprehensive income (loss). There was no income tax expense/benefit allocated to any component of other comprehensive income (loss) (seeNote 10. Stockholders’ Equity for additional information).

Legal Proceedings

 

From time to time, we may be a party to legal proceedings in the course of our business. The outcome of any such proceedings, regardlessregardless of the merits, is inherently uncertain. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Company recordsWe record accruals for contingencies to the extent that the occurrence of the contingency is probable and the amount of liability is reasonably estimable. If the reasonable estimate of liability is within a range of amounts and some amount within the range appears to be a better estimate than any other, then the Company recordswe record that amount as an accrual. If no amount within the range is a reasonable estimate, then the Company recordswe record the lowest amount within the range as an accrual. Loss contingencies that are assessed as remote are not reported in the financial statements, or in the notes to the consolidated financial statements.

 

Impact of Recently Issued andAdopted Accounting Standards

 

Recently Adopted

In September 2015, March 2016, the FASBFinancial Accounting Standards Board (the “FASB”) issued ASU No. 2015-16 (“ASU 2015-16”),Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The standard requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. We adopted this standard during the quarter ended March 31, 2016. The adoption had no impact on our consolidated results of operations, financial condition, or cash flows as presented. However, the future impact of ASU 2015-16 will be dependent on future acquisitions, if any.

In August 2014, the FASB issued ASU No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. We adopted this standard as of December 31, 2016. The adoption of this ASU had no material impact on our consolidated financial statements and consolidated notes to these statements.

Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04 (“ASU 2017-04”),Intangibles 2016- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. ASU 2017-04 will be effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of the new standard to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18 (“ASU 2016-18”),Statement of Cash Flows (Topic 230) – RestrictedCash. For entities that have restricted cash and are required to present a statement of cash flows, ASU 2016-18 changes the cash flow presentation for restricted cash. ASU 2016-18 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements or statement of cash flows.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”),Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on eight (8) cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09,09,Compensation – Stock Compensation (Topic 718)718)("ASU 2016-09"). The standard simplifies several aspects of accounting for stock-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for reporting periods beginning after We adopted this standard on January 1, 2017. For the year ended December 15, 2016; however, early31, 2017, we recognized all excess tax benefits and tax deficiencies associated with exercise of stock options as income tax expense or benefit as a discrete event. The adoption is permitted. We are currently evaluating the impact of this new standardASU did not have a material impact on our consolidated financial statements.

 

Not Yet Adopted

In February 2016, January 2017, the FASB issued ASU No. 2016-02,2017-01 (“ASU 2017-01”), Business Combinations (Topic 805): Clarifying the Definition of a Business. The standard narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that this new guidance will reduce the number of transactions that would be accounted for as a business. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No.2017-04 (“ASU 2017-04”), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. ASU 2017-04 will be effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of the new standard to have a material impact on our consolidated financial statements.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

In November 2016, the FASB issued ASU No.2016-18 (“ASU 2016-18”), Statement of Cash Flows (Topic 230) – Restricted Cash. For entities that have restricted cash and are required to present a statement of cash flows, ASU 2016-18 changes the cash flow presentation for restricted cash. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements or statement of cash flows.

In August 2016, the FASB issued ASU No.2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on eight (8) cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No.2016-02,Leases (Topic 842)842) ("“ASU 2016-02"2016-02”).The standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. Additionally, ASU 2016-022016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. ASU 2016-022016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted for all entities.2018, with early adoption permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01,2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities("“ASU 2016-01"2016-01”). The standard requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. Additionally, ASU 2016-012016-01 eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments on the balance sheet. ASU 2016-012016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Other than an amendment relating to presenting in comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk (if the entity has elected to measure the liability at fair value), early adoption is not permitted. We are currently evaluatingdo not expect the impactadoption of this new standard to have a material impact on our consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09,2014-09,Revenue from Contracts with Customers (Topic 606)606) ("(“ASU 2014-09"2014-09”). The standard provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance. This ASU provides that an entity should recognize revenue to depict transfers of promised goods or services to customers in amounts reflecting the consideration to which the entity expects to be entitled in the transaction by: (1)(1) identifying the contract; (2)(2) identifying the contract'scontract’s performance obligations; (3)(3) determining the transaction price; (4)(4) allocating the transaction price to the performance obligations; and (5)(5) recognizing revenue when or as the entity satisfies the performance obligations. The guidance permits companies to apply the requirements either retrospectively to all prior periods presented or in the year of adoption through a cumulative adjustment.adjustment by applying a modified retrospective transition method. ASU 2014-092014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and interim periods therein. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the process of identifying performance obligations.

We are in the process of evaluating our significantidentified four primary revenue streams from contracts and the reviewwith customers as part of our current accounting policiesassessment: (1) royalties, (2) licensing arrangements, (3) software licensing arrangements, and practices to identify potential differences that would result from applying the requirements(4) product sales. We have completed our evaluation of the new standard to our revenue contracts and assessed the impact it may haveimpacts of adoption on ourthe consolidated financial statements and disclosures. In addition, we are inBased on the processevaluation of identifyingour current contracts and revenue streams, revenue recognition is mostly consistent under both the appropriate changes to business processes, systems,previous and controls to support recognition and disclosurenew standard, except for contracts under the software licensing arrangements revenue stream. Under the previous accounting policy, revenue related to the bonus payments earned under the software license arrangements have been recognized when paid by the customer. Upon adoption of the new standard.standard, revenue related to the bonus payments will be estimated and recognized quarterly as applicable. We expect towill adopt the new revenue standard in the first quarter ofeffective January 1, 2018 applyingusing the modified retrospective transition method. We will record a cumulative credit adjustment of approximately $0.1 million to the opening balance of accumulated deficit, with a corresponding debit to accounts receivable, related to the change in accounting treatment for the bonus payments under the software license arrangements revenue stream. We do not anticipate implementing significant changes to our internal controls or systems due to the adoption of the new standard. The disclosures, which we are still evaluating, in our notes to consolidated financial statements related to revenue recognition will be significantly expanded under the new standard.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

3. Acquisitions, Goodwill and Acquired Intangible Assets

 

IAcquisition of EXINI Diagnostics AB

On November 12, 2015, we acquired 92.45% of the outstanding shares of EXINI, a Lund, Sweden based leader in the development of advanced imaging analysis tools and solutions for medical decision support. EXINI's operations are included in our consolidated financial statements beginning November 12, 2015, the date we acquired control. Through the end of the extended acceptance period of November 27, 2015, we acquired additional outstanding shares, bringing our ownership to 96.81%. We commenced a judicial process in Sweden for acquiring the remaining shares and EXINI was delisted and ceased to be publicly traded effective as of the close of trading on December 4, 2015. On December 8, 2016, a Swedish arbitral tribunal awarded us advanced title to the remaining shares of EXINI and, as of that date, EXINI became a wholly-owned subsidiary with 100% of the voting shares owned by us.

Goodwill and Acquired Intangible Assets

In connection with the 2015 acquisition of EXINI and the 2013 acquisition of Molecular Insight, intangiblentangible assets and goodwill were initially measured at the acquisition date at estimated fair value and capitalized. 

Third and fourth quarter 2014 reviewscapitalized for the acquisitions of our intangible assets resulted in $2.7 million impairments of the indefinite-lived balancewholly-owned subsidiaries EXINI and a $16 thousand impairment of the finite-lived balance, with the corresponding impairment charges recorded in our consolidated statements of operations.Molecular Insight.

 

The following table summarizes the activity related to goodwill and intangible assets:

 

										Other
										Intangible
		Goodwill				IPR&D				Assets
Balance at January 1, 2015		$	7,702			$	28,700			$	-
Increase related to EXINI acquisition			5,372				-				2,120
Amortization expense			-				-				(27	)
Impairment			-				-				-
Balance at December 31, 2015			13,074				28,700				2,093
Amortization expense			-				-				(212	)
Balance at December 31, 2016		$	13,074			$	28,700			$	1,881

										Other
										Intangible
		Goodwill				IPR&D				Assets
Balance at January 1, 2016		$	13,074			$	28,700			$	2,093
Amortization expense			-				-				(212	)
Balance at December 31, 2016			13,074				28,700				1,881
Amortization expense			-				-				(212	)
Balance at December 31, 2017		$	13,074			$	28,700			$	1,669

 

The following table reflects the components of the finite-lived intangible assets as of December 31, 2016:2017:

 

		Gross Amount				Accumulated Amortization				Net Carrying Value				Gross Amount				Accumulated Amortization				Net Carrying Value
Finite lived intangible assets		$	2,120			$	239			$	1,881			$	2,120			$	451			$	1,669
Total		$	2,120			$	239			$	1,881			$	2,120			$	451			$	1,669

 

The weighted-average remaining life of the finite-lived intangible assets was approximately nineeight years at December 31, 2016.2017.

 

Amortization expense was calculated on a straight-line basis over the estimated useful life of the asset and was $212$212 thousand and $27 thousandper year for the yearyears ended December 31, 2016 2017 and 2015, respectively.2016. Assuming no changes in the gross carrying amount of finite lived intangible assets, the future annual amortization expense related to finite lived intangible assets is expected to be $212$212 thousand in each of the next five years (2017(2018 through 2021) 2022).

4. Fair Value Measurements

 

We record the contingent consideration liability resulting from our acquisition of Molecular Insight at fair value in accordance with ASC 820 (Topic 820,Fair Value Measurement).

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

4. Fair Value Measurements

We record the contingent consideration liability resulting from the Molecular Insight acquisition at fair value in accordance with ASC 820-10-50.

The following tables presentsummarize each major class of our money market funds, included in cashfinancial assets and cash equivalents, and contingent consideration liabilityliabilities measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy:hierarchy (in thousands):

 

						Fair Value Measurements at December 31, 2016																Fair Value Measurements at December 31, 2017
						Quoted Prices in				Significant Other				Significant								Quoted Prices in				Significant Other				Significant
		Balance at				Active Markets for				Observable				Unobservable								Active Markets for				Observable				Unobservable
		December 31,				Identical Assets				Inputs				Inputs				Balance at				Identical Assets				Inputs				Inputs
		2016				(Level 1)				(Level 2)				(Level 3)				December 31, 2017				(Level 1)				(Level 2)				(Level 3)
Assets:
Money market funds		$	137,340			$	137,340			$	-			$	-			$	87,231			$	87,231			$	-			$	-
Total assets		$	137,340			$	137,340			$	-			$	-			$	87,231			$	87,231			$	-			$	-
Liabilities:
Contingent consideration liability		$	14,200			$	-			$	-			$	14,200			$	16,800			$	-			$	-			$	16,800
Total liabilities		$	14,200			$	-			$	-			$	14,200			$	16,800			$	-			$	-			$	16,800

 

						Fair Value Measurements at December 31, 2015																Fair Value Measurements at December 31, 2016
						Quoted Prices in				Significant Other				Significant								Quoted Prices in				Significant Other				Significant
		Balance at				Active Markets for				Observable				Unobservable								Active Markets for				Observable				Unobservable
		December 31,				Identical Assets				Inputs				Inputs				Balance at				Identical Assets				Inputs				Inputs
		2015				(Level 1)				(Level 2)				(Level 3)				December 31, 2016				(Level 1)				(Level 2)				(Level 3)
Assets:
Money market funds		$	68,140			$	68,140			$	-			$	-			$	137,340			$	137,340			$	-			$	-
Total assets		$	68,140			$	68,140			$	-			$	-			$	137,340			$	137,340			$	-			$	-
Liabilities:
Contingent consideration liability		$	18,800			$	-			$	-			$	18,800			$	14,200			$	-			$	-			$	14,200
Total liabilities		$	18,800			$	-			$	-			$	18,800			$	14,200			$	-			$	-			$	14,200

 

UnderThe contingent consideration liability of $16.8 million and $14.2 million at December 31, 2017 and 2016, respectively, represents the termsestimated fair value of the termsfuture potential milestone payments to former Molecular Insight 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 the acquisition agreement, we agreed to pay to the former stockholders potential milestones,specified net sales target in cash or our common stock at our option, of up to $23.0 million contingent upon achieving specified commercialization events and up to $70.0 million contingent upon achieving specified sales targets relating to Molecular Insight’s products. any single calendar year across all MIP-related programs (in thousands):

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

We consider this contingent liability a Level 3 instrument (one(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 contingent consideration liability of $14.2 million as of December 31, 2016, represents future potential milestone payments to former Molecular Insight stockholders. development projects and subsequent commercial success and discount rates.

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 were the probabilities of achieving regulatory approval of the development projects and subsequent commercial success, and discount rates.

 

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement.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.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 tables summarizes quantitative information and assumptions pertaining to the fair value measurement of the Level 3 inputs at December 31, 2017 and 2016 (in thousands). The 2017 increase in the contingent consideration liability of $2.6 million was primarily attributable to the higher probability of success of AZEDRA used to calculate the potential milestone payments to former Molecular Insight stockholders and a reduction in the discount period.

		Fair Value at
		December 31,							Range
		2017			Valuation Technique		Unobservable Input		(Weighted-Average)
Contingent Consideration Liability:
AZEDRA commercialization		$	5,500		Probability adjusted		Probability of success			72%
					discounted cash flow model		Period of expected milestone achievement			2018
							Discount rate			10%
1404 commercialization			4,500		Probability adjusted		Probability of success			59%
					discounted cash flow model		Period of expected milestone achievement			2020
							Discount rate			10%
1095 commercialization			400		Probability adjusted		Probability of success			16%
					discounted cash flow model		Period of expected milestone achievement			2025
							Discount rate			10%
Net sales targets			6,400		Monte-Carlo simulation		Probability of success		16%	-	72%
							Discount rate			10%
Total		$	16,800

		Fair Value at
		December 31,							Range
		2016			Valuation Technique		Unobservable Input		(Weighted-Average)
Contingent Consideration Liability:
AZEDRA commercialization		$	3,800		Probability adjusted		Probability of success			54%
					discounted cash flow model		Period of expected milestone achievement			2018
							Discount rate			10%
1404 commercialization			4,700		Probability adjusted		Probability of success			59%
					discounted cash flow model		Period of expected milestone achievement			2019
							Discount rate			10%
1095 commercialization			400		Probability adjusted		Probability of success			16%
					discounted 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 3 inputs, the following table summarizes the activities for the periods indicated:

		Liability - Contingent Consideration
		Fair Value Measurements Using
		Significant Unobservable Inputs
		(Level 3)
		2017				2016
Balance at beginning of period		$	14,200			$	18,800
Fair value change included in net income (loss)			2,600				(4,600	)
Balance at end of period		$	16,800			$	14,200
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		$	2,600			$	(4,600	)

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

The following tables present quantitative information pertaining to the December 31, 2016 and 2015 fair value measurements of the Level 3 inputs. The 2016 decrease in the contingent consideration liability of $4.6 million resulted primarily from a decrease in the projected sales and an increase in the discount rate used to calculate the present value of the potential sales-based milestone payments to former Molecular Insight stockholders under the acquisition agreement.

		Fair Value at
		December 31,							Range
		2016			Valuation Technique		Unobservable Input		(Weighted-Average)
Contingent Consideration Liability:
AZEDRA commercialization		$	3,800		Probability adjusted		Probability of success				54%
					discounted cash flow model		Period of expected milestone achievement				2018
							Discount rate				10%
1404 commercialization			4,700		Probability adjusted		Probability of success				59%
					discounted cash flow model		Period of expected milestone achievement				2019
							Discount rate				10%
1095 commercialization			400		Probability adjusted		Probability of success				16%
					discounted 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

 

		Fair Value at
		December 31,							Range
		2015			Valuation Technique		Unobservable Input		(Weighted-Average)
Contingent Consideration Liability:
AZEDRA commercialization		$	2,500		Probability adjusted		Probability of success				40%
					discounted cash flow model		Period of expected milestone achievement
							Discount rate				10%
1404 commercialization			4,200		Probability adjusted		Probability of success				59%
					discounted cash flow model		Period of expected milestone achievement				2019
							Discount rate				10%
1095 commercialization			500		Probability adjusted		Probability of success				19%
					discounted cash flow model		Period of expected milestone achievement				2023
							Discount rate				10%
Net sales targets			11,600		Monte-Carlo simulation		Probability of success			19%	-	59%	(37%)
							Discount rate(1)			12%	/	4%
Total		$	18,800

(1) The contingent consideration liability related to the net sales targets was derived from a model under a risk neutral framework resulting in the application of 12% and 4% discount rates to estimated cash flows.

For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated:

		Liability - Contingent Consideration
		Fair Value Measurements Using
		Significant Unobservable Inputs
		(Level 3)
		2016				2015
Balance at beginning of period		$	18,800			$	17,200
Fair value change included in net income (loss)			(4,600	)			1,600
Balance at end of period		$	14,200			$	18,800
Changes in unrealized gains or losses for the periodincluded in earnings (or changes in net assets) forliabilities held at the end of the reporting period		$	(4,600	)		$	1,600

 

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5PROGENICS PHARMACEUTICALS, INC.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

5. Accounts Receivable

 

Our accountsaccounts receivable represent amounts due to us from collaborators, royalties, and sales of research reagents, and consisted of the following at December 31, 2016 2017 and 2015: 2016:

 

		2016				2015
Royalties		$	2,407			$	3,463
Collaborators			2,000				63
Other			457				27
Accounts receivable, gross			4,864				3,553
Less - Allowance for doubtful accounts			-				(10	)
Accounts receivable, net		$	4,864			$	3,543

		2017				2016
Royalties		$	3,683			$	2,407
Collaborators			13				2,000
Other			276				457
Accounts receivable, net		$	3,972			$	4,864

 

66.. Fixed Assets

 

Fixed assets as of December 31, 20162017 and 20152016 consisted of the following:

 

		2016				2015				2017				2016
Machinery and equipment		$	1,493			$	5,706			$	2,516			$	1,493
Leasehold improvements			1,640				5,027				1,734				1,640
Computer equipment			695				1,727				714				695
Furniture and fixtures			877				131				874				877
Construction in progress			893				87				-				893
Property and equipment, gross			5,598				12,678				5,838				5,598
Less - accumulated depreciation			(838	)			(10,271	)			(1,716	)			(838	)
Property and equipment, net		$	4,760			$	2,407			$	4,122			$	4,760

 

At December 31, 20162017 and 2015, $1.62016,$1.6 million and $1.5 million, respectively, of net leasehold improvements were being amortized over periods of 13.812.8 years and 6.4 – 10.813.8 years, respectively, under leases with terms through September 30, 2030 and December 31, 2020, respectively. 2030. We recorded depreciation expense of $1.9$0.9 million, $0.5$1.9 million, and $0.5$0.5 million during 2017,2016, 2015, and 2014,2015, respectively.

 

77.. Accrued Expenses

 

The carrying value of our accrued expenses approximates fair value as it represents amounts that will be satisfied within one year. Accrued expenses consisted of the following at December 31, 2016 2017 and 2015:2016:

 

		2016				2015				2017				2016
Accrued clinical trial costs										$	2,570			$	4,885
Accrued payroll and related costs											2,400				1,957
Accrued consulting and service fee expenses											1,860				1,026
Accrued legal and professional fees											1,022				1,123
Accrued contract manufacturing costs											666				2,048
Loss contingency for litigation		$	4,000			$	2,516				-				4,000
Accrued legal and professional fees			1,123				1,089
Accrued consulting and clinical trial costs			6,933				2,844
Accrued payroll and related costs			1,957				1,961
Other			1,751				802				1,037				751
Accrued expenses		$	15,764			$	9,212			$	9,555			$	15,790

 

88.. Commitments and Contingencies

 

a. Operating Leases

 

At December 31, 2016,2017, we leased corporate office space in New York City, pursuant to a lease agreement expiring in September 2030 (subject(subject to an early termination right), and additional office space in Lund, Sweden, pursuant to a lease agreement which expires in December 2018.

 

Rental payments are recognized as rent expense on a straight-line basis over the term of the lease. In addition to rents due under these agreements, we are obligated to pay additional facilities charges, including utilities, taxes and operating expenses.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

As of December 31, 2016,2017, future minimum annual payments under all operating lease agreements are as follows:

 

Years ending		Minimum Annual				Minimum Annual
December 31,		Payments				Payments
2017		$	1,835
2018			1,868			$	1,877
2019			1,818				1,818
2020			1,852				1,852
2021			1,886				1,886
2022							2,134
Thereafter			20,682				18,549
Total		$	29,941			$	28,116

 

Rental expenseexpense totaled approximately $1.2$1.9 million, $1.9$1.2 million, and $1.9$1.9 million for 2017,2016, 2015, and 2014,2015, respectively. For 2017 and 2016, rent expense exceeded amounts paid by $210$323 thousand and $210 thousand, respectively and for 2015 and 2014, amounts paid exceeded rent expense by $49 thousand and $3 thousand, respectively.$49 thousand. Additional facility charges, including utilities, taxes, and operating expenses, for 2017,2016, 2015, and 20142015 were approximately $1.1$0.1 million, $2.5$1.1 million, and $2.1$2.5 million, respectively.

 

Licensingb. Licensing,, Service, and Supply Agreements

 

We have entered into intellectual property-based license and service agreements in connection with product development programs, and have incurred milestone, license and sublicense fees and supply costs, included in research and development expenses, totaling approximately $324$343 thousand, $388$324 thousand, and $498$388 thousand during the 2017,2016, 2015, and 2014,2015, respectively.

 

		Paid from inception/acquisition to December 31, 2016				Future Commitments(1)			Terms
Seattle Genetics, Inc.		$	4,701			$	13,700		Milestone and periodic maintenance payments to use ADC technology to link chemotherapeutic agents to monoclonal antibodies that target prostate specific membrane antigen. ADC technology is based in part on technology licensed by SGI from third parties.
											Paid from inception/acquisition to December 31, 2017				Future Commitments (1)			Terms
Amgen Fremont, Inc. (formerly Abgenix)		$	1,350			$	5,750		Milestones and royalties to use XenoMouse® technology for generating fully human antibodies to PSMA LLC’s PSMA antigen.		$	1,350			$	5,750		Milestones and royalties to use XenoMouse® technology for generating fully human antibodies to PSMA LLC’s PSMA antigen.
Former member of PSMA LLC		$	391			$	52,188		Annual minimum royalty payments and milestones to use technology related to PSMA.		$	428			$	52,188		Annual minimum royalty payments and milestones to use technology related to PSMA.
University of Zurich and the Paul Scherrer Institute		$	335			$	1,005		Annual maintenance and license fee payments, milestones and royalties in respect of licensed technology related to 1404.		$	500			$	840		Annual maintenance and license fee payments, milestones and royalties in respect of licensed technology related to 1404.
University of Western Ontario		$	38			$	275		Annual minimum royalty, administration and milestone payments in respect of licensed technology related to AZEDRA.		$	78			$	257		Annual minimum royalty, administration and milestone payments in respect of licensed technology related to AZEDRA.
Johns Hopkins University Technology		$	150			$	2,760		Annual minimum royalty payments and milestones to use technology related to PyL.		$	150			$	2,760		Annual minimum royalty payments and milestones to use technology related to PyL.
Selexis Commercial License Agreement		$	59			$	1,802		Milestones and royalties to use Selexis technology related to PSMA Antibodies.		$	59			$	1,792		Milestones and royalties to use Selexis technology related to PSMA Antibodies.

 

⁽¹⁾⁽¹⁾ Amounts based on known contractual obligations as specified in the respective license agreements, which are dependent on the achievement or occurrence of future milestones or events and exclude amounts for royalties which are dependent on future sales and are unknown.

 

In addition, wewe are planning to out-license or terminate non-germane licenses and service agreements, as to which we have paid $301 thousand$4.9 million through December 31, 2016, 2017, and have future commitments of $14.3$28.5 million, subject to occurrence of future milestones or events.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

c. Consulting Agreements

 

As part of our research and development efforts, we have from time to time entered into consulting agreements with external scientific specialists. These agreements contain various terms and provisions, including fees to be paid by us and royalties, in the event of future sales, and milestone payments, upon achievement of defined events, payable by us. Certain of these scientists are advisors to us, and some have purchased our common stock or received stock options which are subject to vesting provisions. We have recognized expenses with regard to the consulting agreements of $164$326 thousand, $54$164 thousand, and $67$54 thousand for 2017,2016, 2015, and 2014,2015, respectively.

 

d. Legal Proceedings

 

On January 4, 2017, we settled all claims against us under a federal action brought in 2010 by a former employee, where such former employee had complained that we had violated the anti-retaliation provisions of the Federalfederal Sarbanes-Oxley law by terminating him. In connection with this settlement, we and the former employee exchanged mutual releases and we are to paypaid an aggregate sum of $4.0$4.0 million to the former employee and his attorneys, which is included in accrued expenses on our consolidated balance sheet at December 31, 2016. We have $1.7 million held by the District Court in escrow and recorded as restricted cash in other current assets on our consolidated balance sheet at December 31, 2016.attorneys.

 

On October 7, 2015 Progenics, Valeant and Wyeth LLC (Valeant’s(Valeant’s predecessor as licensee of RELISTOR) received notification of a Paragraph IV certification for certain patents for RELISTOR^® (methylnaltrexone bromide) subcutaneous injection, which are listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. The certification resulted from the filing by Mylan Pharmaceuticals, Inc. of an Abbreviated New Drug Application (“ANDA”) with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

On October 28, 2015, Progenics, Valeant and Wyeth LLC received a secondsecond notification of a Paragraph IV certification with respect to the same patents for RELISTOR subcutaneous injection from Actavis LLC as a result of Actavis LLC’s filing of an ANDA with the FDA, also challenging these patents and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection before some or all of these patents expire.

 

In October 2016, Progenics, Valeant, and Wyeth LLC received a notification of a Paragraph IV certification with respect to certain patents for RELISTOR Tablets. The certification accompanied the filing by Actavis LLC of an ANDA challenging such patents for RELISTOR Tablets and seeking to obtain approval to market a generic version of RELISTOR tablets before some or all of these patents expire.

 

In accordance with the Drug Price Competition and Patent Term Restoration Act (commonly referred to as the Hatch-Waxman Act), Progenics and Valeant timely commenced litigation against each of these ANDA filers in order to obtain an automatic stay of FDA approval of the ANDA until the earlier of (i) 30 months from receipt of the notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed.

 

In addition to the above described ANDA notifications, in October 2015 Progenics received notices of opposition to three European patents relating to methylnaltrexone.methylnaltrexone. The oppositions were filed separately by each of Actavis Group PTC ehf. and Fresenius Kabi Deutschland GmbH.

 

Each of the above-described proceedings is in its early stages and Progenics and Valeant continue to cooperate closely to vigorously defend andand enforce RELISTOR intellectual property rights. Pursuant to the RELISTOR license agreement between Progenics and Valeant, Valeant has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement.

 

We are or may be from time to time involved in various other disputes, governmental and/or regulatory inspections, inquires, investigations and proceedings that could result in litigation, and other litigation matters that arise from time to time. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect us, our results of operations, financial condition, and cash flows.

 

In the third quarter of 2014, Progenics and Ono, its former licensee of RELISTOR in Japan, settled all claims between them relating to an arbitration commenced by Progenics in 2013, the parties’ October 2008 License Agreement and the former licensee’s development and commercialization of the drug. In connection therewith, the parties exchanged mutual releases and the former licensee paid us $7.25 million, which was recorded as other operating income.

 

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9.PROGENICS PHARMACEUTICALS, INC.

NOTES TONoCONSOLIDATEDnFINANCIAL STATEMENTS-Recourse — continued

(amounts in thousands, except per share amounts or as otherwise noted)

9. Non-Recourse Long-Term Debt, Net

 

On November 4, 2016, through a new wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), we entered into a$50.0 million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”) pursuant to which HCRP agreed to make term loans in an aggregate principal amount of up to $100.0 million. We borrowed $50.0 million and can borrow an additional $50.0 million, subject to mutual agreement with HCRP, up to twelve months after the closing date.. Under the terms of the Royalty-Backed Loan, the lenders have no recourse to us or to any of our assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under our agreement with Valeant. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of 9.5%.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

Under the terms of the loan agreement, payments of interest and principal, if any, under the loan will be made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately preceding payment date. On each payment date prior to March 31, 2018, RELISTOR royalty payments received since the immediately preceding payment date will be applied solely to the payment of interest on the loan, with any royalties in excess of the interest amount retained by us. Beginning on March 31, 2018, 50 percent of RELISTOR royalty payments received since the immediately preceding payment date in excess of accrued interest on the loan will be used to repay the principal of the loan, with the balance retained by us. Starting on September 30, 2021, all of the RELISTOR royalties received since the immediately preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. The loan has a maturity date of June 30, 2025. Upon the occurrence of certain triggers in the loan agreement, or if HCRP so elects on or after January 1, 2018, all of the RELISTOR royalty payments received after the immediately preceding payment date shall be applied to the payment of interest and repayment of principal until the principal of the loan is fully repaid. In the event of such an election by HCRP, we have the right to repay the loan without any prepayment penalty.

 

In connection with the Royalty-Backed Loan, the debt issuance costs have been recorded as a debt discount in our consolidated balance sheets and are being amortized and recorded as interest expense throughout the life of the loan using the effective interest method.

 

The Loan Agreement contains customary defined events of default, upon which any outstanding principal and unpaid interest shall be immediately due and payable. These include: failure to pay any principal or interest when due; any uncured breach of a representation, warranty or covenant; any uncured failure to perform or observe covenants; any uncured cross default under a material contract; any uncured breach of our representations, warranties or covenants under a contribution and servicing agreement with MNTX Royalties; any termination of the RELISTOR license agreement; certain bankruptcy or insolvency events; and the occurrence of a material adverse effect.

As of December 31, 2016,2017, we were in compliance with all material covenants under the Royalty-Backed Loan and there was no material adverse change in our business, operations, or financial conditions, as defined in the loan agreement.

 

Future principal, based upon estimated sales projections, under the Royalty-Backed Loan as of December 31, 2016, 2017, are as follows:

 

2017		$	--
2018			2,626			$	2,686
2019			3,678				3,738
2020			4,795				4,858
2021			8,068				8,156
2022							12,069
Thereafter			31,598				19,245
Total payments		$	50,765			$	50,752

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PROGENICS PHARMACEUTICALS, INC.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

Interest expense, including amortization of debt discount, related to the Royalty-Backed Loan for the year ended December 31, 20162017 was approximately $0.8$5.1 million. Accrued interest, which was accreted as part of principal at December 31, 2016, was $0.7 million.

 

1010. Stockholders’ Equity

 

Common Stock and Preferred Stock

 

We are authorized to issue 160 million shares of our common stock, par value $.0013,$.0013, and 20 million shares of preferred stock, par value $.001.$.001. The Board of Directors (the “Board”) has the authority to issue common and preferred shares, in series, with rights and privileges as determined by the Board.

 

Shelf Registration

 

During the first quarter of 2017, we established a $250.0$250.0 million replacement shelf registration statement. Under a previously established $150.0 million replacement shelf registration statement, in February 2014, we completed an underwritten public offering of 8.75 million shares of common stock at a public offering price of $4.60 per share, resulting in net proceeds of approximately $37.5 million. All sales of shares have been and will continue to be made pursuant to an effective shelf registration statement on Form S-3S-3 filed with the U.S. Securities and Exchange Commission. In addition, in January 2017 we entered into a Sales Agreement with Cantor, as sales agent, pursuant to which we may offer and sell through Cantor, from time to time, shares of our common stock up to an aggregate offering price of $75.0 million.

During the fourth quarter of 2017, we sold a total of 854,606 shares of our common stock in at-the-market transactions under the Sales Agreement for net proceeds, after deducting commissions and other transaction costs, of approximately $5.0 million at an average selling price of $6.06 per share. At December 31, 2017, we had 320,182 shares of our common stock subscribed in at-the-market transactions under the Sales Agreement for net proceeds, after deducting commissions and other transaction costs, of approximately $2.1 million at an average selling price of $6.79 per share. Accordingly, we have recorded a subscription receivable of $2.1 million as a reduction of stockholders’ equity in our consolidated balance sheet at December 31, 2017.

 

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

Accumulated Other Comprehensive Loss (“AOCL”)

 

The following table summarizes the components of AOCL at December 31, 2016:2017:

 

		Foreign Currency Translation				AOCL
Balance at January 1, 2016		$	(26	)		$	(26	)
Foreign currency translation adjustment			(59	)			(59	)
Balance at December 31, 2016		$	(85	)		$	(85	)

		Foreign Currency Translation				AOCL
Balance at January 1, 2017		$	(85	)		$	(85	)
Foreign currency translation adjustment			52				52
Balance at December 31, 2017		$	(33	)		$	(33	)

 

We did not have any reclassifications out of AOCL to losses during 2016.2017.

 

1111. Stock-Based . Stock-Based Compensation

 

Equity Incentive Plans

 

WeWe adopted the following stockholder-approved equity incentive plans:

 

●     The 1996 Amended Stock Incentive Plan (the "1996 Plan") authorized the issuance of up to 5,000,000 shares of our common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 1996 Plan was terminated in 2006. Options granted before termination of the 1996 Plan will continue to remain outstanding until exercised, cancelled, or expired.

The 1996 Amended Stock Incentive Plan (the "1996 Plan") authorized the issuance of up to 5,000,000 shares of our common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 1996 Plan was terminated in 2006. Options granted before termination of the 1996 Plan will continue to remain outstanding until exercised, cancelled, or expired.

 

●     The 2005 Stock Incentive Plan (the "2005 Plan"), pursuant to which we are authorized to issue up to 11,450,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2005 Plan will terminate on March 25, 2024.

The 2005 Stock Incentive Plan (the "2005 Plan"), pursuant to which we are authorized to issue up to 11,450,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2005 Plan will terminate on March 25, 2024.

 

The stock option plans provide that options may be granted at an exercise price of 100% of fair market value of our common stock on the date of grant, may be exercised in full or in installments, at the discretion of the Board or its Compensation Committee, and must be exercised within ten years from date of grant. Stock options generally vest pro rata over three to five years. We recognize stock-based compensation expense on a straight-line basis over the requisite service (vesting) period based on fair values. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of stock-based compensation expense as of the grant date. We adjust the total amount of stock-based compensation expense recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

Stock Options

 

The following table summarizes stock options activity for the year ended December 31, 2016:2017:

 

										Weighted												Weighted
						Weighted				Average								Weighted				Average
		Number				Average				Remaining				Number				Average				Remaining
		of Shares				Exercise Price				Contractual Life				of Shares				Exercise Price				Contractual Life
Outstanding at January 1, 2016			5,134			$	9.05				5.69
Outstanding at January 1, 2017															4,887			$	7.57				5.81
Granted			1,229			$	4.77								1,232			$	10.34
Exercised			(244	)		$	5.50								(80	)		$	5.89
Cancelled			(926	)		$	6.86								(159	)		$	8.96
Expired			(306	)		$	24.88								(345	)		$	22.42
Outstanding at December 31, 2016			4,887			$	7.57				5.81
Exercisable at December 31, 2016			3,517			$	8.46				4.65
Vested and expected to vest at December 31, 2016			4,668			$	7.67				5.66
Outstanding at December 31, 2017															5,535			$	7.25				6.04
Exercisable at December 31, 2017															3,736			$	6.71				4.77
Vested and expected to vest at December 31, 2017															5,227			$	7.15				5.87

 

The weighted average fair value of options granted during 2017,2016, 2015, and 20142015 was $3.24, $5.02,$6.96,$3.24, and $3.41$5.02 per share, respectively.

 

The total intrinsic value (the excess of the market price over the exercise price) was approximately $12.1$2.7 million for stock options outstanding, $7.5$2.0 million for stock options exercisable, and $11.4$2.6 million for stock options vested and expected to vest, as of December 31, 2016. 2017. The total intrinsic value for stock options exercised during 2017,2016, 2015, and 20142015 was $476$233 thousand, $465$476 thousand, and $102$465 thousand, respectively.

 

We typically do not expect to realize any tax benefits from our stock option activity or the recognition of stock-based compensation expense, because we currently have net operating losses and have a full valuation allowance against our deferred tax assets. Accordingly, no amounts related to windfall tax benefits have been reported in cash flows from operations or cash flows from financing activities for 2016, 2015 or 2014.

Stock-Based Compensation Expense

 

We account for stock-based awards issued to employees in accordance with the provisions of ASC 718 (Topic 718,Compensation – Stock Compensation). We recognize stock-based compensation expense on a straight-line basis over the service period of the award, which is generally three to five years. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC 718 and ASC 505-50505-50 (Subtopic 50 "Equity-Based Payments to Non-Employees" of Topic 505,Equity). Options granted to consultants are periodically revalued as the options vest, and are recognized as an expense over the related period of service or the vesting period, whichever is longer. Under the provisions of ASC 718, members of the Board are considered employees for calculation of stock-based compensation expense.

 

We estimated the fair value of the stock options granted on the date of grant using a Black-Scholes valuation model that used the weighted average assumptions noted in the following table. The risk-freerisk-free interest rate assumption we use is based upon U.S. Treasury interest rates appropriate for the expected life of the awards. The expected life (estimated period of time that we expect employees, directors, and consultants to hold their stock options) was estimated based on historical rates for three group classifications, (i) employees, (ii) outside directors and officers, and (iii) consultants. Expected volatility was based on historical volatility of our stock price for a period equal to the stock option's expected life and calculated on a daily basis. The expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

The following table presents assumptions used in computing the fair value of option grants during 2017,2016, 2015, and 2014:2015:

 

		2016				2015				2014				2017			2016			2015
Risk-free interest rate			1.53	%			2.00	%			2.13	%		2.17%			1.53%			2.00%
Expected life (in years)			6.77				6.97				6.84			6.76			6.77			6.97
Expected volatility			74	%			81	%			82	%		72%			74%			81%
Expected dividend yield			--				--				--			--			--			--

 

Stock-based compensation expense for the three years ended December 31, 2017, 2016, and 2015 was recorded in our consolidated statement of operations as follows:

 

		2016				2015				2014				2017				2016				2015
Research and development expenses		$	843			$	1,099			$	1,843			$	1,371			$	843			$	1,099
General and administrative expenses			1,614				1,849				1,680				2,771				1,614				1,849
Total stock-based compensation expense		$	2,457			$	2,948			$	3,523			$	4,142			$	2,457			$	2,948

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

At December 31, 2016,2017, unrecognized stock-based compensation expense related to stock options was approximately $2.8$5.5 million and is expected to be recognized over a weighted average period of approximately 2.62.3 years.

 

112.2. Employee Savings Plan

 

The terms of the amended and restated Progenics Pharmaceuticals 401(k)401(k) Plan (the “401(k)“401(k) Plan”), among other things, allow eligible employees to participate in the Amended Plan by electing to contribute to the 401(k)401(k) Plan a percentage of their compensation to be set aside to pay their future retirement benefits. We matched 50% of employee contributions equal to 1% - 10% of compensation during the twothree years ended December 31, 2016 and 50% of employee contributions equal to 5% - 8% of compensation during the year ended December 31, 2014, 2017, made by eligible employees to the 401(k)401(k) Plan (the “Matching Contribution”). In addition, we may also make a discretionary contribution each year on behalf of all participants who are non-highly compensated employees. We made Matching Contributions of approximately $281$302 thousand, $327$281 thousand, and $276$327 thousand to the 401(k)401(k) Plan for the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively. No discretionary contributions were made during those years.

 

113.3. Income Taxes

 

We account for income taxes using the liability method in accordance with ASC 740 (Topic (Topic 740,Income Taxes). Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

In 2016, we recorded an incomeOn December 22, 2017, the U.S. government enacted comprehensive tax provision of $1.8 million primarily duelegislation, commonly referred to an adjustmentas the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to our deferredthe U.S. tax liability for higher effectivecode, including, but not limited to, (1) reducing the U.S. federal corporate tax rate resulting from relocation35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of our headquartersforeign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate AMT and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to New York City. Weuses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

In 2017, we recorded an income tax benefit of $133approximately $11.7 million, of which $6.6 million related to the reduction in the federal and state tax rates, $4.8 million related to the use of our naked credit as a source of income to release a portion of our valuation allowance and the remaining $0.2 million related to a refundable AMT credit. Our effective tax rate for 2017 was18.6%. In 2016, we recorded an income tax expense of approximately $1.8 million as a result of an increase in our effective tax rate to 14.7%. Our effective tax rate in 2016 was impacted by our relocation to New York City, which has its own local tax rate and adds to the overall tax rate used for calculating the income tax provision. In 2015, we recorded an income tax benefit of approximately $133 thousand and $989 thousand in 2015 and 2014, respectively, resulting fromas a result of the change in the temporary difference between carrying amounts of in-processin process research and development assets for financial reporting purposes and the amounts used for income tax purposes. Our effective tax rate for 2015 was 0.3%.

We have completed calculations through June 30, 2016, under Internal Revenue Code Section 382, the results of which indicate that past ownership changes will limit annual utilization of net operating losses (“NOLs”) in the future. Ownership changes subsequent to June 30, 2016, may further limit the future utilization of net operating loss and tax credit carry-forwards as defined by the Federalfederal and state tax codes.

Our accounting for the following elements of the Tax Act is not yet complete as we are still in the process of analyzing its impact on us. Where we have been able to make reasonable estimates of the effects for which our analysis is not yet complete, we have recorded provisional amounts pursuant to the guidance within SEC Staff Accounting Bulletin No.118 (“SAB 118”). Our accounting treatment is expected to be complete when our 2017 U.S. corporate income tax return is filed in 2018.

Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. Consequently, we have adjusted our deferred tax asset, liability and corresponding valuation allowance based on the enacted tax rate, which resulted in a provisional income tax benefit of approximately $3.7 million in 2017.

Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings.

 

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PROGENICS PHARMACEUTICALS, INC.

 

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

The components of the (benefit from) provision for (benefit from) income taxes during 2016, 2015, and 2014 each of the three years ending December 31, 2017 consisted of the following:

 

		2016				2015				2014
														2017				2016				2015
Current taxes:
United States		$	11			$	-			$	-			$	3			$	11			$	-
Foreign			-				-				-				-				-				-
State			22				-				-				(16	)			22				-
Total current taxes		$	33			$	-			$	-			$	(13	)		$	33			$	-
Deferred taxes:
United States		$	-			$	-			$	-			$	(8,777	)		$	-			$	-
Foreign			-				-				-				-				-				-
State			1,811				(133	)			(989	)			(2,882	)			1,811				(133	)
Total deferred taxes		$	1,811			$	(133	)		$	(989	)		$	(11,659	)		$	1,811			$	(133	)
Provision for (benefit from) income taxes		$	1,844			$	(133	)		$	(989	)
(Benefit from) provision for income taxes														$	(11,672	)		$	1,844			$	(133	)

 

Deferred tax assets and liabilities as of December 31, 2016 2017 and 2015,2016 consisted of the following:

 

		2016				2015				2017				2016
Deferred tax assets:
Depreciation and amortization		$	788			$	2,215			$	100			$	788
Research & Experimental and Orphan Drug tax credit carry-forwards			27,361				19,284				33,496				27,361
NYS investment tax credit carry-forwards			933				1,087				1,284				933
AMT credit carry-forwards			221				211				-				221
Net operation loss carry-forwards			227,171				226,639				177,313				227,171
Capitalized research and development expenditures			11,915				15,149				3,066				11,915
Stock compensation			12,343				12,250				5,666				12,343
Other items			4,513				2,562				1,279				4,513
Total gross deferred tax assets			285,245				279,397				222,204				285,245
Less valuation allowance			(285,245	)			(279,397	)			(217,382	)			(285,245	)
Deferred tax assets			-				-				4,822				-
Deferred tax liability			(13,010	)			(11,199	)			(6,397	)			(13,010	)
Net deferred tax liability		$	(13,010	)		$	(11,199	)		$	(1,575	)		$	(13,010	)

 

We maintain a fulltax valuation allowance on substantially all deferred tax assets considering our history of taxable losses and the uncertainty regarding our ability to generate sufficient taxable income in the future to utilize these deferred tax assets. For 20152017 and 2014,2016, we incurred net losses for tax purposes. We recognized a full tax valuation against deferred tax assets at December 31, 2016 2017 and 2015.2016. In 20162017 and 2015,2016, we recognized deferred income tax liabilities of $13.0$1.6 million and $11.2$13.0 million, respectively, to reflect the net tax effects of temporary differences between the carrying amounts of in process research and development assets for financial reporting purposes and the amounts used for income tax purposes.

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PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

The following is a reconciliation of income taxes computed at the FederalU.S. statutory income tax rate to our effective tax rate for the actual effective income tax provision during years ended December 31, 2017, 2016, 2015, and 2014:2015:

 

		2016				2015				2014
														2017				2016				2015
U.S. Federal statutory rate			34.0	%			34.0	%			34.0	%			34.0	%			34.0	%			34.0	%
State income taxes, net of Federal benefit			10.8	%			4.8	%			8.0	%			1.5	%			10.8	%			4.8	%
Foreign rate differential			2.6	%			(0.1	%)			0.0	%			(0.6%	)			2.6	%			(0.1%	)
Research and experimental and Orphan Drug tax credit			(63.0	%)			1.7	%			(16.0	%)			9.4	%			(63.0%	)			1.7	%
Effect of federal and state tax rate changes			(43.0	%)			(4.8	%)			1.6	%			(6.1%	)			(43.0%	)			(4.8%	)
Tax reform impact															13.9	%			-				-
Permanent differences			0.1	%			(1.4	%)			15.1	%			(4.4%	)			0.1	%			(1.4%	)
Stock option shortfalls			22.3	%			(6.1	%)			38.1	%			(3.1%	)			22.3	%			(6.1%	)
Change in valuation allowance			50.9	%			(27.8	%)			(109.6	%)			(26.0%	)			50.9	%			(27.8%	)
Income tax expense/benefit			14.7	%			0.3	%			(28.8	%)
Effective tax rate															18.6	%			14.7	%			0.3	%

 

As of December 31, 2016,2017, we had available, for tax return purposes, unused Federalfederal NOLs of approximately $599.7$664.8 million, which will expire in various years from 2018 to 2035, $18.7 million of which were generated from deductions post January 1, 2006 that, when realized, will reduce taxes payable and will increase paid-in-capital and are not reflected in our deferred tax assets above. Additionally, $11.2 million of the valuation allowance relates to NOLs attributable to excess tax deductions for equity compensation pre January 1, 2006. When realized this will also be reflected as an increase to paid-in-capital.2037. Also, we had available, for tax return purposes, unused state NOLs of approximately $554.0$569.0 million, which will expire in various years from 2030 to 2035.

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Table of Contents

PROGENICS PHARMACEUTICALS, INC.2037.

NOTES TOCONSOLIDATEDFINANCIAL STATEMENTS— continued

(amounts in thousands, except per share amounts or as otherwise noted)

 

We have reviewed our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our tax liability under ASC 740, if any, or require an additional liability to be recorded. We have not, as of yet, conducted a study of our research and experimental (“R&E”) credit carry-forwards. Such a study might result in an adjustment to our R&E credit carry-forwards, but until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740-10740-10 except for uncertain tax positions acquired in connection with the Molecular Insight acquisition. A full valuation allowance has been provided against our R&E credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the statements of operations and comprehensive loss if an adjustment was required.

 

As of December 31, 2016,2017, we are subject to Federal,federal, foreign, and state income tax. Open tax years relate to years in which unused net operating losses were generated or, if used, for which the statute of limitation for examination by taxing authorities has not expired. Our open tax years extend back to 1997.No amounts of interest or penalties were recognized in our consolidated statements of operations or consolidated balance sheets as of and for the years ended December 31, 2017, 2016, 2015, and 2014.2015.

 

Our R&E and Orphan Drug tax credit carry-forwards of approximately $28$34.2 million at December 31, 2016 2017 expire in various years from 2018 to 2036.2037.

 

As of December 31, 2016 2017, and 2015,2016, we have not recognized any liability for uncertain tax positions, because of our full valuation allowance.allowance on net operating losses and R&E credits. We will recognize interest and penalties related to these positions, should such costs be assessed. The recognition of unrecognized tax benefits would not affect our effective tax rate because the tax benefit would be offset by an increase in our valuation allowance.

 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 20162017 and 2015.2016.

 

		2016				2015				2017				2016
Beginning uncertain tax benefits		$	2,661			$	2,661			$	2,661			$	2,661
Current year - increases			-				-
Current year - decreases			-				-
Prior year - increases (decreases)											(710	)			-
Current year - increases (decreases)											-				-
Settlements			-				-				-				-
Expired statuses			-				-				-				-
Ending uncertain tax benefits		$	2,661			$	2,661			$	1,951			$	2,661