Enzon first quarter adjusted loss from continuing operations decreases to $4.2 million

Enzon Pharmaceuticals, Inc.May 7 2011

Enzon Pharmaceuticals, Inc. (Nasdaq: ENZN) today announced its financial results for the first quarter of 2011.

“We have had a productive start to 2011, as we completed our transformation to an R&D organization and successfully executed our strategy focused on the development of our high-value oncology pipeline”

For the first quarter of 2011, Enzon reported income from continuing operations of $431 thousand, or $0.01 on a diluted per-share basis, as compared to income from continuing operations of $20.8 million, or $0.29 per diluted share for the first quarter of 2010. First quarter 2011 results included a $5.0 million milestone earned upon the approval of a supplemental Biologic License Application (sBLA) for the manufacture of the active ingredient for Oncaspar. 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 Oncaspar and Adagen, two of the specialty products sold.

"We have had a productive start to 2011, as we completed our transformation to an R&D organization and successfully executed our strategy focused on the development of our high-value oncology pipeline," stated Alex Denner, Chairman of the Board. "Our clinical progress, reflected in the initiation of our Phase I trial for our Androgen Receptor antagonist and the presentation of encouraging data from our portfolio of mRNA antagonists, was complemented by our continued commitment to return value to our shareholders through our share repurchase program."

First Quarter 2011 and Recent Highlights

• At the 2011 American Association of Cancer Research (AACR) Annual Meeting in April, Enzon presented data from preclinical and clinical studies of four investigational messenger RNA (mRNA) antagonists, demonstrating the compounds' potential to inhibit key tumor targets that antibodies and small molecules have limited ability to control and access.
• In January, Enzon announced the FDA had accepted its Investigational New Drug (IND) application for its Androgen Receptor (AR) mRNA antagonist. Following this approval, the Company enrolled and treated the first patient in its Phase I trial of the AR antagonist in castration-resistant prostate cancer.
• In April, the Company received notice that the U.S. Food and Drug Administration (FDA) granted firtecan-pegol (EZN-2208) orphan drug designation for the treatment of neuroblastoma. Orphan drug designation provides for marketing exclusivity for that indication in the U.S., an expedited review process, a reduction in associated application fees and certain other benefits.
• During the first quarter of 2011, Enzon repurchased 3.9 million shares of outstanding common stock, totaling $41.5 million. As of April 30, 2011, the Company had purchased a total of 5.7 million shares of outstanding common stock for a cumulative cost of $62.2 million.

Summary of Financial Results

Research and Development

The Company's pipeline research and development expenses were $10.5 million for the three months ended March 31, 2011, compared to $11.5 million for the three months ended March 31, 2010. The pipeline consists of the following programs: PEG-SN38, Hypoxia-Inducible Factor-1α (HIF-1α), Survivin and AR mRNA antagonists, and additional mRNA antagonists utilizing the LNA technology. The expenses for the first quarter of 2011 included $5.6 million related to the ongoing Phase II and Phase I studies of PEG-SN38 and $4.6 million related to the development of the mRNA antagonists. This compared to $4.2 million and $6.4 million, for PEG-SN38 and mRNA antagonists, respectively, in first quarter 2010.

Revenues

Royalty Revenue

Revenues received from the Company's royalty products for the three months ended March 31, 2011 were $11.8 million, as compared to $12.9 million for the three months ended March 31, 2010. Royalties on PEGINTRON, marketed by Merck & Co., Inc., continue to comprise the majority of the Company's royalty revenue and a reported decline in sales of PEGINTRON accounted for essentially all of the decrease in royalty revenue.

Sale of In-process Research and Development (IPR&D)

During the first quarter of 2011, the Company received a $5.0 million milestone payment from the purchaser of the specialty pharmaceutical business resulting from the approval of an sBLA for the manufacture of Oncaspar.

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.

General and Administrative

General and administrative expenses decreased approximately 49 percent to $5.1 million for the three months ended March 31, 2011, as compared to $9.9 million for the three months ended March 31, 2010. The decrease is due in large part to management's efforts to contain costs and to reduce the overhead necessary to support the current size and structure of the Company. Also, the first-quarter 2010 expenses included a noncash expense of $2.4 million related to the acceleration of stock expense associated with the sale of the specialty pharmaceutical business and the resignation of the Company's former CEO. The Company continues to identify and implement efficiencies to reduce ongoing general and administrative expenses. Meanwhile, the effects of the fourth-quarter 2010 restructuring and the first-quarter 2011 consolidation of facilities at the Company's Piscataway location are expected to generate further savings over the remainder of 2011.

Contracted Services

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. In addition, Enzon agreed to perform ongoing general, administrative, and selling services as requested by the purchaser. The transition service agreement supporting these activities provides for Enzon to be reimbursed at a cost plus an additional mark-up for all expenses incurred. The level of these activities has diminished substantially over the period subsequent to the sale of the specialty pharmaceutical business and should decline significantly from 2010 levels throughout the remainder of 2011.

Restructuring Charges

During the first quarter of 2011, the Company completed the planned relocation of its corporate offices from Bridgewater, New Jersey to Piscataway, New Jersey. As a result of having vacated the excess office space in Bridgewater, the Company incurred a charge during the first quarter of 2011 in the amount of approximately $0.4 million. This amount represents the excess of committed lease costs over potential sublease income. The Company recognized $9.9 million related to separation benefits in the first quarter of 2010. These expenses related to a workforce reduction involving 64 employees, primarily associated with the sale of the specialty pharmaceutical business and separation costs associated with the resignation of the Company's then CEO.

Cash and Investments

Total cash reserves, which include cash, cash equivalents, short-term investments, and marketable securities, were $418.9 million as of March 31, 2011, as compared to $460.1 million as of December 31, 2010. During the first quarter of 2011, the Company expended approximately $41.5 million to purchase 3.9 million shares of its outstanding common stock. Since the inception of a $200 million share repurchase program in December 2010, the Company has purchased a total of 5.7 million shares of its outstanding common stock for a cumulative cost of $62.2 million through April 30, 2011.

Adjusted Financial Results

For the three months ended March 31, 2011, Enzon reported an adjusted loss from continuing operations of $4.2 million, or $(0.07) per diluted share, as compared to an adjusted loss from continuing operations of $10.3 million, or $(0.20) per diluted share, for the three months ended March 31, 2010.