Enzon Pharmaceuticals, Inc. (Nasdaq: ENZN) today announced its financial results for the second quarter of 2010. For the second quarter of 2010, Enzon reported a loss from continuing operations of $5.4 million or $0.09 per diluted share, as compared to a loss of $19.7 million or $0.43 per diluted share for the second quarter of 2009.
“Enzon made significant progress over the second quarter in realigning its operations as a biopharmaceutical company”
"Enzon made significant progress over the second quarter in realigning its operations as a biopharmaceutical company," said Alex Denner, Ph.D., Chairman of the Board. "The Company is now focused on building value through its novel pipeline of oncology therapeutics and returning value from its other assets. Enzon also improved its corporate governance standards last quarter by eliminating board classes and instituting annual elections for our entire slate of directors. Governance was further enhanced with the addition of Drs. Thomas Deuel and Richard Young as directors, each of whom brings outstanding scientific credentials and experience to the Board."
Summary of Financial Results
Research and Development
Enzon's research and development pipeline consists of the following programs: PEG-SN38, HIF-1 alpha antagonist, survivin antagonist and an additional six mRNA antagonists utilizing the LNA technology.
The total amount of expense related to Enzon's pipeline programs was $10.1 million in the second quarter of 2010, compared to $11.8 million in the second quarter of 2009. The second quarter 2009 expense was higher due to the costs associated with the purchase of materials and manufacturing of HIF-1 alpha and survivin antagonist drug supply for Phase I clinical trials. Partially offsetting this was the $1.0 million milestone expense related to HER3 RNA antagonist in the second quarter of 2010.
The amount attributable to the Company's PEG-SN38 program for the second quarter of 2010 was $4.4 million as compared to $3.0 million spent in the second quarter of 2009. Enzon continues to enroll patients in its ongoing PEG-SN38 studies. Enrollment is ongoing in the Phase II colorectal cancer study, as well as the Phase II metastatic breast cancer and the Phase I pediatric cancer studies, both of which were initiated in early 2010.
Preclinical and clinical activities for the mRNA antagonists using LNA technology amounted to $4.7 million in the second quarter compared to $8.0 million in the second quarter of 2009. Second quarter 2010 costs included a $1.0 million milestone payment for the HER3 antagonist. During the second quarter of 2009, the Company purchased raw materials used in the manufacturing process of the LNA compounds and manufacture of additional clinical drug supply for the ongoing Phase I studies for the HIF-1 alpha and survivin antagonists. Enrollment in the Phase I clinical trials for the HIF-1 alpha and survivin antagonists is ongoing and Enzon is continuing preclinical development 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 American Association for Cancer Research meeting in Washington, DC.
The Company also incurred an expense of $1.0 million during the quarter ended June 30, 2010 related to its efforts to identify additional compounds that may benefit from Enzon's proprietary Customized Linker Technology which is associated with the PEGylation platform. This compares to $0.8 million spent on these efforts in the comparable period 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. Total expense incurred during the second quarter of 2010 for the next-generation programs and other activities associated with the specialty pharmaceutical products was $1.6 million. The expenses Enzon incurs on these programs are reimbursed with a mark-up and reported as contract research and development revenue which was $2.6 million for the second quarter of 2010. For the quarter ended June 30, 2009, Enzon reported research and development expenses of $9.4 million related to the specialty pharmaceutical products which, at that time, were entirely the responsibility of Enzon.
Revenues
Royalty Revenue
Revenues received from the Company's royalty products for the quarter ended June 30, 2010 were $10.6 million, as compared to $13.2 million for the quarter ended June 30, 2009. Royalties on PEGINTRON, marketed by Merck & Co., Inc., continue to comprise the majority of the Company's royalty revenue. Royalty revenues were impacted by lower PEGINTRON sales as well as the loss of Pegasys royalties which ended in October 2009. The Company continues to evaluate the possible sale of its PEGINTRON royalty stream, with consideration given to the impact on after tax return to shareholders as well as developments in the HCV drug market.
Miscellaneous Revenue
In order to effectively transition its 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 cost plus a mark-up for all expenses incurred on the requested services. During the second quarter of 2010, Enzon recognized $0.5 million in revenue associated with this service and a related $0.4 million of expense.
General and Administrative
General and administrative expenses decreased to $5.8 million for the quarter ended June 30, 2010, as compared to $10.1 million for the second quarter of 2009. The decrease is due in large part to the Company's ongoing cost control initiatives. Also, reflected in the second quarter results are the favorable effects of the fourth-quarter 2009 and first-quarter 2010 acceleration of share-based compensation and the first quarter of 2010 restructuring program, both of which reduced ongoing compensation costs. The Company has made significant progress in reducing expenses and will continue to identify and implement efficiencies that will potentially further reduce general and administrative costs. However, the rate of improvement experienced during the second quarter of 2010 is not expected to continue.
Restructuring Charge
The restructuring charges of approximately $0.7 million for the quarter ended June 30, 2010, was predominantly related to the write-off of the carrying value of certain furnishings and leasehold improvements located at the Company's facility in Bridgewater, New Jersey. As part of the sale of the specialty pharmaceutical business in January 2010 and the Company's ongoing effort to reduce overhead expenses, the Company consolidated a large portion of its operations to its research facility in Piscataway, New Jersey.
Cash and Investments
Total cash reserves, which include cash, cash equivalents, short-term investments, and marketable securities, were $504.0 million as of June 30, 2010, as compared to $199.7 million as of December 31, 2009. The increase is primarily due to the proceeds the Company received from the sale of the specialty pharmaceutical business. Also during the first six months of 2010, the Company received approximately $25.0 million from employee stock option exercises which was partially offset by the purchase of $18.1 million of its outstanding common stock. Since the inception of its share repurchase program in December 2009, the Company has purchased approximately 2.1 million shares of its outstanding common stock at a cost of $21.5 million.
Discontinued Operations
Specialty Pharmaceutical Business Results
During the second quarter of 2009, the specialty pharmaceutical business generated an income of $14.6 million. This was a result of the revenue recognized from sales of the four specialty pharmaceutical products and contract manufacturing, offset by associated expenses for the divested business.
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