Progenics' Self-Proclaimed "Master[s] of Commercialization" Continue to Underperform Under the Troubling Status Quo and Neglect to Publicly State Metrics and Goals to Assess Future Performance
Velan Expresses Disappointment with the Board's Continued Lack of Constructive Engagement and Refusal to Accept Appropriate Settlement Offers, Especially Given Stockholder Vote Results
ALPHARETTA, Ga., Aug. 12, 2019 /PRNewswire/ -- Velan Capital, L.P. (together with the other members of its group, "Velan" or "we"), one of the largest stockholders of Progenics Pharmaceuticals, Inc. ("Progenics" or the "Company")(PGNX), comprised of successful specialty pharmaceutical operators and financial services experts, today announced its disappointment with the Company's Q2 2019 results and lack of metrics to track future performance, and highlights key issues that illustrate the Company's continual mismanagement under the troubling status quo.
In its Q2 2019 earnings release issued on Friday, August 9, 2019, the Company highlighted the "challenging" commercial launch for AZEDRA; Velan could not agree more.
- Progenics only administered two doses of AZEDRA in Q2 2019 and gave no indication of expectations for the rest of 2019.
- The Company continues to reference treatment requests as progress, but acknowledges this is "not a great metric" and "we are learning a lot", while refusing to answer questions regarding the conversion rate on these treatment requests. The learning curve remains too steep for management more than one year after receiving FDA approval. If treatment requests are "not a great metric", why has the Company solely relied on this metric for the last three earnings calls? Guiding to a metric that continues to increase while patient dosings remain miniscule further illustrates the Company's preference for misdirection away from its true performance.
- Only one new healthcare facility has been brought online since Q1 2019, and only 13 centers are currently online out of an addressable set of 20-30, according to the Company.
At least the Company is now slightly more honest by describing AZEDRA's launch as "challenging". Compare this to June 2019, when the Company claimed "Progenics has mastered this complex commercialization process". Perhaps it is easier to admit mistakes when not involved in a campaign of misinformation and misleading claims intended to solicit stockholder votes and avoid accountability at all costs. Fortunately, most stockholders have been able to see through the mirage.
Lack of prudent expense management remains an issue at Progenics. The Company spent nearly $25 million in cash in Q2 2019. At this rate, the Company may need to refinance within the next year and potentially further dilute stockholders. Surprisingly, the Company appears to have spent ~$6 million (and counting?) fighting a losing campaign designed to entrench an underperforming Board of Directors (the "Board"); in contrast, Velan has spent a mere fraction of that amount (less than $1 million to-date). Velan efficiently manages expenses because of its value maximization mindset and because each expense is personally funded. Unfortunately, the PGNX Board takes the opposite approach – wasteful spending because it remains poorly aligned with stockholders. Engaging with Velan to reach a resolution that reflects the level of change needed to maximize stakeholder value at Progenics would have been a much more efficient use of time and would have saved valuable cash that could be used to advance the Company's product portfolio.
In addition, the Company omitted its progress on patient recruitment for MIP-1095 in its Q2 2019 earnings release and did not provide a metric for how to measure progress in future quarters. How can stockholders assess the progress of a key clinical trial when enrollment expectations have not been communicated? One potential reason for not disclosing enrollment expectations is further explained below (we continue to see mismanagement compounded by limited transparency from the Company), as Velan highlights key incremental diligence findings that all stockholders should know:
AZEDRA's "Challenging" Launch
While the commercial launch has indeed been challenging, Velan believes another undisclosed reason has caused the ten-month delay from approval to (limited) launch – manufacturing issues.
- In March 2018, the Company's 2017 10-K stated that Progenics is "in the final stages of establishing manufacturing capacity that we believe will be sufficient to deliver commercial supplies of AZEDRA."
- In our recent discussions with the Company, executives acknowledged they needed to make "tweaks" to the manufacturing process before they could release a manufacturing batch. They also stated these "tweaks" could not take place until after they acquired the facility in February 2019. We asked whether these statements meant they did not have commercial supply before February 2019, and they refused to answer the question directly.
- What is the reason for the delay from March 2018 to February 2019 when the Company was supposedly in the "final stages" of securing commercial supply? There seems to be something the Company does not want stockholders to know.
In Velan's view, Progenics could not launch AZEDRA in a timely manner due to these manufacturing "tweaks". The Company has remained silent and has refused to be transparent with stockholders regarding why it took an unprecedented TEN MONTHS to launch AZEDRA.
MIP-1095 Clinical Trial Held Hostage
- The Company previously used Centre for Probe Development and Commercialization ("CPDC") to manufacture AZEDRA for its clinical trials and selected CPDC as the supplier for MIP-1095's clinical trials.
- In August 2018, CPDC was placed under an import ban by the FDA which meant it could not ship product into the United States. We suspect that CPDC's import ban is the reason why the MIP-1095 Phase 2b clinical trial is only active in Canada and likely why the Company refuses to state enrollment statistics.
- To our knowledge, the Company has not publicly disclosed CPDC's import ban. In contrast, Cellectar Biosciences, Inc., another company that also used CPDC, received an FDA exemption to import its product for use in clinical trials and publicly updated stockholders on its progress. Instead, Progenics left stockholders in the dark and might be rolling the dice on CPDC's ability to import into the U.S. in the future.
- What happens to MIP-1095 if CPDC's import ban is not lifted? When we asked Company executives, they were unable to provide specifics as to why the Somerset facility cannot currently manufacture MIP-1095 and when the Somerset facility would be able to manufacture MIP-1095.
Unfortunately, the Company appears complacent being dependent upon the FDA lifting its import ban on CPDC. We hope the Company is correct and CPDC's import ban is lifted but having a backup plan is extremely important and is a concept this team does not embrace, as evidenced by AZEDRA's manufacturing delay. A delay to the MIP-1095 clinical trial because of these issues and a reluctance to implement a backup plan would destroy significant stockholder value.
Somerset Supply Chain Constraints
- The Somerset facility can currently manufacture one batch of AZEDRA per week which equals approximately three doses. This can result in ~75 patients treated on an annualized basis (assuming all doses and batches are perfectly timed) which implies a gross revenue ceiling of ~$22.5 million. We think this batch limitation will be a particular concern as AZEDRA patients return for their second dose which will likely impact the amount of new patients that can be scheduled and dosed.
- While the Company likely has plans to expand its manufacturing capabilities, it should be public about these efforts and its strategy. We also question the supply chain capacity assuming AZEDRA commercialization improves and AZEDRA's 150-patient basket trial is launched later this year.
- Progenics' supply chain constraints and AZEDRA manufacturing issues have likely led to the delay for AZEDRA's basket trial and reluctance to be transparent about the timing and design of the basket trial.
- Most concerning, however, is MIP-1095 and ensuring this can be manufactured by a facility that can sell product in the U.S. Will the Somerset facility have sufficient capacity for MIP-1095 in the future? Will it have sufficient capacity today if CPDC's import ban is not lifted?
While the Company mismanages its key assets, it compounds its mistakes by focusing on distracting projects such as AI that do not add significant value and only serve to reduce the time spent on commercializing AZEDRA and advancing its product pipeline.
Stockholders deserve more information and clarity. To Velan, the continued lack of transparency at Progenics is extremely concerning, particularly given CEO Mark Baker's history of wrongfully stifling a whistleblower who thought Progenics was misleading stockholders. We believe there might even be more recent examples of such behavior. Under current guidance and without departure from the status quo, the Company's potential will continue to be squandered at the expense of stockholders. The Board claims to seek new director candidates with applicable supply chain and commercialization expertise – skills that appear absent from the current Board and management team. We have identified potential candidates that have such expertise (who we understand have not been contacted by the Company or by its costly executive search firm), yet the Company has not welcomed our repeated outreach attempts to reach a constructive resolution.
As previously communicated to the public and to the Board, Velan's preference has always been and continues to remain reaching an appropriate settlement to put the Company on a better path and to instill much needed accountability in the boardroom. Stockholders have spoken through their votes at last month's annual meeting and we believe the mandate is clear. Without an appropriate settlement that reflects the degree of change desperately needed at PGNX, we will likely be forced to take action yet again on behalf of all stockholders, including by seeking to remove and replace members of the Board.