Enzon Pharmaceuticals, Inc. (Nasdaq: ENZN) today announced its financial results for the first quarter of 2010. During the quarter, the Company completed the sale of its specialty pharmaceutical business. This transaction has now transformed the Company, both financially and operationally, into a biopharmaceutical company dedicated to the discovery and development of oncology medicines.
For the first quarter of 2010, Enzon reported income from continuing operations of $20.8 million or $0.29 per diluted share, as compared to a loss of $11.4 million or $0.25 per diluted share for the first quarter of 2009. Included in the results of continuing operations for the first quarter of 2010, is revenue of $40.9 million from the sale of in-process research and development associated with next-generation Adagen® and Oncaspar® programs, which were sold as part of the specialty pharmaceutical business.
The remaining gain from the sale of the specialty pharmaceutical business, as well as the January results of operations from the business sold, are reported in discontinued operations. For the three months ended March 31, 2010, Enzon reported income and gain from discontinued operations of $179.1 million or $2.41 per diluted share. Enzon previously reported income of $17.6 million or $0.39 per diluted share from the specialty pharmaceutical business in the first quarter of 2009, which has been reclassified for comparative purposes to discontinued operations.
Recent Highlights
- The Company initiated enrollment in the Phase II PEG-SN38 study for patients with metastatic breast cancer.
- The Company initiated enrollment in the Phase I PEG-SN38 study for pediatric patients.
- Preclinical data was presented on Locked Nucleic Acid (LNA)-based mRNA antagonists and PEGylation programs at the 2010 American Association for Cancer Research (AACR) annual meeting in Washington, DC April 17-21, 2010.
- The sale of the specialty pharmaceutical business was completed in January 2010.
- The Company's debt was reduced by $115.6 million to $134.5 million. This principal amount was converted into approximately 13.5 million shares of the Company's common stock pursuant to an enhanced conversion rate triggered by the sale of the specialty pharmaceutical business.
- Since inception of its share repurchase plan, the Company has repurchased 1.3 million of its common shares outstanding through April 30, 2010 for $13.8 million.
Summary of Financial Results
Research and Development
The Company's overall research and development expenses were $14.6 million for the three months ended March 31, 2010, as compared to $16.8 million for the three months ended March 31, 2009.
The total amount of expense related to Enzon's pipeline programs was $11.5 million in the first quarter of 2010, compared to $11.1 million in the first quarter of 2009. The pipeline consists of the following programs: PEG-SN38, HIF-1 alpha antagonist, survivin antagonist, and an additional six mRNA antagonists utilizing the LNA technology.
During the three months ended March 31, 2010, Enzon initiated enrollment using its PEG-SN38 compound in a Phase II study for metastatic breast cancer and a Phase I study for pediatric cancer. The amount incurred on our PEG-SN38 program for the first quarter of 2010 was $4.2 million, as compared to $3.8 million in the three months ended March 31, 2009.
The cost associated with the preclinical and clinical activities for the mRNA antagonists using the LNA technology was $6.4 million in the first quarter of 2010, which included a $1.0 million milestone payment for the beta-catenin antagonist. In the three months ended March 31, 2009, Enzon incurred $6.2 million for the mRNA antagonist programs. The Company is currently conducting Phase I clinical trials for the HIF-1 alpha and survivin antagonists, as well as preclinical studies for the additional six mRNA antagonist-directed oncology targets which are known to play an important role in cancer cell growth. Data from three of our mRNA antagonist programs were presented at the April 2010 AACR meeting in Washington, DC.
The Company is also working on identifying additional compounds that may benefit from Enzon's proprietary Customized Linker Technology™ which is associated with the PEGylation platform. This effort resulted in an investment of $0.9 million for the first quarter of 2010, compared to $1.1 million in the first quarter of 2009.
As a result of the sale of Enzon's specialty pharmaceutical business in January 2010, the activities related to the specialty pharmaceutical products became the responsibility of the purchaser at the close of the transaction. Enzon continues to assist in the development of the next-generation Adagen and Oncaspar programs through a transition services arrangement. The total amount incurred during the first quarter of 2010 for the next-generation programs and other activities associated with the specialty pharmaceutical products was $3.1 million. The expenses Enzon incurs on these programs starting in February 2010 are reimbursed with a mark-up and reported as revenue. For the three months ended March 31, 2009, Enzon reported expenses of $5.7 million related to the specialty pharmaceutical products.
Revenues
Royalty Revenue
Revenues received from the Company's royalty products for the three months ended March 31, 2010 were $12.9 million, as compared to $13.1 million for the three months ended March 31, 2009. Royalties on PEGINTRON, marketed by Merck & Co., Inc., continue to comprise the majority of the Company's royalty revenue. The Company continues to evaluate the possible sale of its PEGINTRON royalty stream.
Sale of In-process Research and Development (IPR&D)
The Company recorded revenue of $40.9 million in the three-month period ended March 31, 2010 related to the sale of in-process research and development. This represents the improvements in the product process and pharmaceutical properties of two divested specialty products, Oncaspar and Adagen.
Contract Research and Development Revenue
As part of the specialty pharmaceutical sale, Enzon agreed to continue to assist in the development of the next-generation Adagen and Oncaspar programs on a contracted basis. The agreement provides for Enzon to be reimbursed at a cost plus an additional mark-up for all expenses incurred on the programs. During the first quarter of 2010, Enzon recognized $2.6 million in revenue associated with this activity.
Miscellaneous Revenue
In order to effectively transition the specialty pharmaceutical business, Enzon agreed to perform ongoing general, administrative, and selling services as needed by the purchaser on a contracted basis. The agreement provides for Enzon to be reimbursed at a cost plus an additional mark-up for all expenses incurred on the requested services. During the first quarter of 2010, Enzon recognized $1.8 million in revenue associated with this service.
General and Administrative
General and administrative expenses increased slightly to $9.8 million for the three months ended March 31, 2010, as compared to $9.5 million for the three months ended March 31, 2009. The increase is primarily due to the acceleration of stock expense associated with the recent sale of the specialty pharmaceutical business and resignation of Enzon's former CEO. The acceleration of the stock compensation resulted in a noncash incremental $2.4 million expense in the first quarter of 2010. The Company continues to identify and implement efficiencies to reduce ongoing general and administrative expenses.
The Company also incurred $1.4 million of expenses for the period of February and March of 2010 related to the transition services provided to the purchaser of the specialty pharmaceutical business. The expenses were primarily related to the cost of employees assisting the purchaser with transition related issues in order to provide a seamless transfer of systems and information.
Restructuring Charge
During the first quarter of 2010, the Company's headcount was reduced by the termination of those employees who were associated with the specialty pharmaceutical business, and a reduction of other general and administrative functions that were eliminated as a result of the determination of the Company's ongoing needs. The Company recognized $9.9 million related to severance costs in the first quarter of 2010 and severance associated with the recent resignation of the Company's former CEO. The Company expensed $3.8 million for severance payments and benefits that may be paid to Mr. Buchalter. In 2009, the Company reported $0.7 million in restructuring charges related to the reduction of headcount to enhance the efficiencies of the organization.
Cash and Investments
Total cash reserves, which include cash, cash equivalents, short-term investments, and marketable securities, were $497.5 million as of March 31, 2010, as compared to $199.7 million as of December 31, 2009. During the first quarter of 2010, the Company received approximately $300 million in cash from the sale of the specialty pharmaceutical business. Also during the first quarter of 2010, the Company purchased $5.8 million of its outstanding common stock. Since the inception of the share repurchase program in December 2009, the Company has purchased a total of $13.8 million of its outstanding common stock through April 30, 2010.
Discontinued Operations
Sale of Specialty Pharmaceutical Business
During the three months ended March 31, 2010, the Company completed the sale of the specialty pharmaceutical business. The specialty pharmaceutical business included the four marketed products, Oncaspar, Adagen, DepoCyt®, and Abelcet®, as well as the contract manufacturing business and facility in Indianapolis, Indiana. The gain of $175.4 million is a result of the cash received less the carrying value of the assets and liabilities associated with the business, IPR&D of $40.9 million associated with the next-generation Adagen and Oncaspar programs and associated transaction costs. In addition to the upfront cash payment, Enzon may be entitled to an additional amount of up to $27 million based on the achievement of success milestones. Furthermore, the Company may receive royalties of 5 to 10 percent on incremental net sales above the 2009 baseline amount through 2014 from the four marketed specialty pharmaceutical products sold.
Specialty Pharmaceutical Business Results
Prior to the completion of our sale of the specialty pharmaceutical business on January 29, 2010, the specialty pharmaceutical business generated an income of $3.7 million. This was a result of the revenue recognized on the four specialty pharmaceutical products and contract manufacturing, offset by associated expenses for the divested business.
Adjusted Financial Results
For the three months ended March 31, 2010, Enzon reported an adjusted loss from continuing operations of $10.3 million or $0.20 per diluted share, as compared to an adjusted loss from continuing operations of $15.2 million or $0.34 per diluted share for the three months ended March 31, 2009.
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