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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 28, 2006
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ENZON PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-12957 22-2372868
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(State or other jurisdiction (Commission File No.) (IRS Identification No.)
of incorporation)
685 Route 202/206, Bridgewater, New Jersey 08807
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 541-8600
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communication pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[_] Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b)
[_] Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On February 28, 2006, Enzon Pharmaceuticals, Inc. ("Enzon") issued a press
release reporting certain financial and other information for the quarter ended
December 31, 2005, the second quarter of Enzon's six-month transition period
ended December 31, 2005. A copy of Enzon's press release dated February 28,
2006, is attached as Exhibit 99.1 to this Current Report and is incorporated by
reference into this Item 2.02.
The information in this Item 2.02, including Exhibit 99.1, is being furnished
and shall not be deemed to be "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the
liability of that Section, nor shall such information be deemed to be
incorporated by reference into any registration statement or other document
filed under the Securities Act of 1933 or the Exchange Act, except as otherwise
stated in that filing.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
99.1 Press Release of Enzon Pharmaceuticals, Inc.
dated February 28, 2006.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 28, 2006
By: /s/ Craig A. Tooman
---------------------------
Craig A. Tooman
Executive Vice President, Finance
and Chief Financial Officer
Exhibit 99.1
Enzon Reports Second Quarter Results and Transitions to Calendar Year; Product
Revenues Expected to Exceed $100 Million in 2006
BRIDGEWATER, N.J.--(BUSINESS WIRE)--Feb. 28, 2006--Enzon
Pharmaceuticals, Inc. (Nasdaq: ENZN) today announced its financial
results for the quarter ended December 31, 2005, the second quarter of
Enzon's six-month transition period ended December 31, 2005. As
previously reported, Enzon announced a change in its fiscal year-end
from June 30 to December 31.
For the three months ended December 31, 2005, Enzon reported a net
loss of $285.6 million or $(6.56) per diluted share, as compared to
break even on a diluted per-share basis for the three months ended
December 31, 2004. The Company's financial results this quarter were
significantly impacted by a $133.1 million non-cash write-down of
intangible assets associated with its intravenous antifungal product,
ABELCET, a write-off of goodwill of $151.0 million ($138.9 million,
net of tax) and a change in the Company's timing of royalty revenue
recognition.
"In 2005, we made great strides to realign the business to enhance
our focus and decision-making. The new Enzon is now better positioned
to deliver long-term value," said Jeffrey H. Buchalter, Enzon's
chairman and chief executive officer. "Our leadership team has been
significantly strengthened with new talent. We are executing a
comprehensive plan that is aligned with our goal of building a
growth-oriented, fully-integrated biopharmaceutical company with a
high-quality franchise in therapeutics for cancer and adjacent
diseases."
"Moving forward, our primary focus will be placed on growing and
capitalizing on our core strengths, namely our key assets that span
research, development, manufacturing, and commercialization," he
continued. "We will also be evaluating select licensing opportunities
to help build a promising development pipeline."
During the six months ended December 31, 2005, the Company changed
a number of its internal operations, including its operating structure
and performance measures, which resulted in a change in its reportable
segments. The Company is now managing its business in three segments
rather than one. These segments are Products, Royalties, and Contract
Manufacturing. Commencing with the quarter ended December 31, 2005,
and going forward, the Company will report revenues and certain
expenses by segment.
The Company provided guidance on sales for its Products segment
for 2006. This segment is currently comprised of its four marketed
products, ONCASPAR, DEPOCYT, ABELCET and ADAGEN. In 2006, combined
revenues of these four products are estimated to exceed $100 million
versus $94.1 million for the twelve months ended December 31, 2005.
Financial Results
For the three months ended December 31, 2005, Enzon reported a net
loss of $285.6 million or $(6.56) per diluted share, as compared to
break even on a diluted per-share basis for the three months ended
December 31, 2004. Downward adjustments of the balance sheet to
reflect the current fair value of certain intangible assets and
goodwill accounted for $272.0 million or $(6.25) per diluted share,
net of tax. These adjustments had no affect on the Company's cash
flow.
As previously reported, and as reflected in this quarter's
year-over-year decline, ABELCET product revenues have not achieved
initial projections. During the six-month period ended December 31,
2005, revised sales and revenue projections were developed for all
products, including ABELCET. The reduced ABELCET sales levels
constituted an impairment indicator that necessitated performing fair
value testing of the ABELCET-related intangibles. The Company
concluded that these intangible assets were impaired and write-downs
totaling $133.1 million were recorded in the Products segment.
In connection with the changes in the Company's segments, and as
part of its financial reporting process, goodwill was allocated to the
Products and Contract Manufacturing segments and then tested for
impairment. The result of this testing was that the goodwill was
impaired and a write-off of approximately $138.9 million was recorded,
net of related deferred tax adjustments.
In addition to the impairments of intangibles and goodwill noted
above, the Company's financial results for the three months ended
December 31, 2005 reflect a reduction of Royalty segment revenues
associated with the licensing of products that utilize its proprietary
PEGylation technology. Royalties are a material component of total
revenues and as the timeline for reporting of financial information
shortens, the need for improved estimating procedures has been
heightened. The Company has historically been able to reasonably
estimate its royalty revenue under its license arrangements
principally using historical trends. However, during recent periods,
the Company has observed greater fluctuations in its royalty income
estimates under these arrangements and believes that it can no longer
reasonably estimate the royalty income that it has earned but which
has not yet been communicated by the third party licensee to the
Company.
Enzon recognizes royalty revenue when it can reasonably be
estimated and collection is reasonably assured, which, beginning with
the quarter ended December 31, 2005, is when the Company receives
notification from its third-party licensee of the royalties earned
under the license agreement. This information is generally received
from the licensees in the quarter subsequent to the period in which
the sales occur. This change resulted in a reduction in royalty
revenue for the quarter ended December 31, 2005. Royalty revenue that
previously would have been recognized in the quarter ended December
31, 2005 will now be recognized upon notification from the third party
licensee, which will be in the quarter ending March 31, 2006. In the
calendar year ended December 31, 2005, the Company effectively
recognized only three quarters' royalty revenue, whereas in calendar
year 2006, it will recognize four quarters' royalty revenue. The
change has no effect on the Company's cash flow.
Adjusted Financial Results
On an adjusted basis, the Company reported a net loss of $13.5
million or $(0.31) per diluted share for the three months ended
December 31, 2005, versus an adjusted net income of $1.7 million or
$0.04 on a diluted per share basis for the three months ended December
31, 2004. Enzon's adjusted financial results for the three-month
period ended December 31, 2005 exclude the impact of the intangibles
and goodwill impairment charges. For the three month period ended
December 31, 2004, adjusted financial results exclude a non-operating
loss related to an equity investment in NPS Pharmaceuticals Inc.
(Nasdaq: NPSP) common stock and a financial instrument that the
Company entered into to reduce its investment risk associated with the
NPS investment, as these losses were outside of the Company's normal
course of business. In August 2005, this financial instrument expired
and the Company sold its remaining shares of NPS common stock.
Not reflected in the adjustments of results for the three months
ended December 31, 2005 is the effect of the change in timing of
royalty revenue recognition discussed above.
Enzon has reported adjusted financial results because the Company
believes they are more representative of the underlying performance of
its business and are relevant to gaining an understanding of the
Company's trends and potential future performance. A table reconciling
the Company's adjusted financial results to its financial results
calculated in accordance with U.S. generally accepted accounting
principles (GAAP) for each of the three-month periods ended December
31, 2005 and 2004 is included later in this release.
Revenues
The following table reflects the revenues generated by product and
segment for each of the three-month periods ended December 31, 2005
and 2004.
Three Months Ended
(in thousands)
---------------------------------
12/31/05 12/31/04 % Change
---------------------------------
Products
- --------
ONCASPAR $7,216 $5,455 32
DEPOCYT 2,125 1,648 29
ABELCET 9,963 14,285 (30)
ADAGEN 4,956 5,574 (11)
---------------------------------
Total Products 24,260 26,962 (10)
Royalties 2,326 10,491 (78)
Contract Manufacturing 3,066 5,463 (44)
---------------------------------
Total Revenue $29,652 $42,916 (31)
=================================
Products Segment
Products segment sales, comprised of sales of ONCASPAR, DEPOCYT,
ABELCET, and ADAGEN, decreased to $24.3 million for the three months
ended December 31, 2005, from $27.0 million for the three months ended
December 31, 2004. The decrease in product sales was mainly
attributable to the decline in ABELCET sales due to competitive market
pressures.
ONCASPAR sales grew to $7.2 million or 32 percent for the three
months ended December 31, 2005, as compared to $5.5 million for the
three months ended December 31, 2004, due, in part, to increased use
in protocols by hospitals and cooperative groups. ONCASPAR is a
PEG-enhanced version of the enzyme L-asparaginase used in combination
with other chemotherapeutics to treat acute lymphoblastic leukemia.
The Company previously reported that the U.S. Food and Drug
Administration approved a labeling change for ONCASPAR, which allows
for administration via the intravenous (IV) route. IV administration
provides clinicians with an important new option for pediatric cancer
patients who require ONCASPAR in their treatment regimen.
Sales of DEPOCYT, a sustained-release formulation of the
chemotherapeutic agent cytarabine arabinoside or ara-C used for the
treatment of lymphomatous meningitis, increased to $2.1 million or 29
percent for the three months ended December 31, 2005, as compared to
$1.6 million for the three months ended December 31, 2004. The
improvement is attributable to volume increases resulting from
DEPOCYT's more convenient dosing schedule.
Sales of ABELCET in the U.S. and Canada for the three months ended
December 31, 2005 were $10.0 million, as compared to $14.3 million for
the three months ended December 31, 2004. The decline from the prior
year is due to competitive market conditions from other lipid
amphotericin B products and other classes of antifungal products.
Sales of ADAGEN, an enzyme replacement therapy used to treat a
type of severe combined immunodeficiency disease, decreased to $5.0
million for the three months ended December 31, 2005, as compared to
$5.6 million for the three months ended December 31, 2004.
Royalties Segment
The Company's Royalties segment primarily represents revenue
received on a number of products that utilize its proprietary
PEGylation technology, including Schering-Plough's PEG-INTRON. The
significant decline in royalty revenues for the three months ended
December 31, 2005, is the result of the Company's decision to
recognize its royalties upon Enzon's receipt of notification from the
licensees of amounts earned. The $2.3 million royalty revenue in the
three months ended December 31, 2005 includes fees associated with the
discontinuation of the research collaboration with Micromet AG.
Royalty revenue for the three months ended December 31, 2004 was $10.5
million.
Contract Manufacturing Segment
The Company's revenues from Contract Manufacturing were $3.1
million for the three months ended December 31, 2005, as compared to
$5.5 million in the corresponding prior year period. This includes
contract manufacturing revenues related to services the Company
provides for a number of customers who require injectable products,
such as ABELCET for markets outside of Canada and the U.S. The
decrease in revenue was due to European competitive market conditions
for ABELCET and, to a lesser extent, the timing of sales of the
injectable multivitamin, MVI.
Research and Development
The Company's research and development expenses remained
relatively unchanged at $8.7 million for the three months ended
December 31, 2005, as compared to $8.8 million for the three months
ended December 31, 2004. The Company's research and development
expenses for the three months ended December 31, 2005 include a charge
of $2.5 million associated with the discontinuation of its research
agreement with Micromet. Enzon is committed to investing in research
and development as it advances its objective of delivering long-term
value, including reinforcing its position as a scientific leader in
next-generation PEGylation and rebuilding its development pipeline.
As previously reported, the Company recently terminated two
collaborations in order to redirect its investments to projects
strategically aligned with its near and long-term business objectives,
including its increased focus on oncology and therapeutic adjacencies.
On November 28, 2005, the Company announced the termination of its
agreement with Micromet AG to collaborate on identifying and
developing antibody-based therapeutics for the treatment of
inflammatory and autoimmune diseases. In addition, on January 6, 2006,
the Company announced it was returning its rights to ATG-Fresenius S,
a polyclonal antibody for the prevention of graft rejection in organ
transplant patients, to Fresenius Biotech GmbH.
Selling, General and Administrative
Selling, general and administrative expenses increased to $16.9
million for the three months ended December 31, 2005, as compared to
$13.7 million for the three months ended December 31, 2004. The
increase is mainly due to increased general and administrative
expenses associated with accounting and legal fees. These fees are
attributable to the transition to a calendar year-end, Sarbanes-Oxley
Act compliance initiatives, and protection of the Company's
intellectual property estate. The Company will invest in new selling,
marketing, and other initiatives to further its objective of
delivering long-term value, including improving its top line
performance by investing in its commercial operations.
Net Other Expense
Net other expense is comprised of investment income, interest
expense, and other non-operating expenses. The Company reported $3.0
million in net other expense for the three months ended December 31,
2005, down approximately $1.5 million from the year-earlier period.
The improvement resulted primarily from increased investment income.
Income Taxes
For the three months ended December 31, 2005, a non-cash net tax
benefit of approximately $12.1 million was recognized for federal and
state purposes, as compared to a net tax provision of $0.1 million for
the three months ended December 31, 2004. The income tax benefit for
the three months ended December 31, 2005 resulted from the deferred
tax implications of the Company's write-off of goodwill.
Cash and Investments
Total cash reserves increased to $226.6 million as of December 31,
2005, as compared to $225.1 million as of June 30, 2005. Cash reserves
include cash, cash equivalents, short-term investments, and marketable
securities. Two items had a significant impact on cash in the
six-month period ended December 31, 2005. The sale of the remaining
375,000 shares of NPS Pharmaceuticals, Inc. that Enzon received as
part of the merger termination agreement resulted in cash proceeds of
$7.5 million. Offsetting these proceeds was the $10.0 million up-front
payment made in accordance with the license agreement announced in
September 2005 with NatImmune A/S for the exclusive rights to rhMBL.
Reconciliation of GAAP net (loss) to adjusted net (loss) earnings
The following table reconciles the Company's net loss and net loss
per diluted share as determined in accordance with U.S. generally
accepted accounting principles (GAAP) to its adjusted net (loss)
income and net (loss) income per share for the three months ended
December 31, 2005 and 2004:
Three Months Ended
(in thousands, except per-share amounts)
-------------------------------------------
12/31/05 12/31/04
--------------------- ---------------------
Net
(loss)
Net loss income
per Net per
Net diluted (loss) diluted
loss share income share
--------------------- ---------------------
GAAP net loss $(285,571) $(6.56) $(10) $(0.00)
Adjustments to GAAP net
loss:
Write-down of goodwill
and intangibles, net of
tax 272,024 6.25 - -
Loss related to the sale
of NPS common stock, net
of tax - 1,718 $0.04
--------------------- ---------------------
Adjusted net (loss)
income (1) $(13,547) $(0.31) $1,708 $0.04
===================== =====================
(1) Adjusted net loss or income and adjusted net loss or income per
share, as Enzon defines them, may differ from similarly named
measures used by other entities, and consequently, could be
misleading unless all entities calculated and defined such items
in the same manner.
Conference Call and Webcast
Enzon will be hosting a conference call today, February 28, 2006
at 10:00 a.m. E.S.T. All interested parties may access the call by
using the following information:
Domestic Dial-In Number: (800) 230-1085
International Dial-In Number: (612) 332-0107
Access Code: 817725
Enzon's conference call will also be webcast in a "listen only"
mode via the Internet at http://www.vcall.com. Additionally, for those
parties unable to listen at the time of Enzon's conference call, a
telephone rebroadcast will be available following the call from
February 28, 2006, at approximately 3:15 p.m. E.S.T. This rebroadcast
will end on March 7, 2006, at approximately 11:59 p.m. E.S.T. The
rebroadcast may be accessed using the following information:
Domestic Dial-In Number: (800) 475-6701
International Dial-In Number: (320) 365-3844
Access Code 817725
About Enzon
Enzon Pharmaceuticals, Inc. is a biopharmaceutical company
dedicated to the development and commercialization of therapeutics to
treat patients with cancer and adjacent diseases. Enzon's specialized
sales force markets ABELCET(R), ONCASPAR(R), ADAGEN(R), and DEPOCYT(R)
in the United States. In addition, Enzon also receives royalties on
sales of PEG-INTRON(R), marketed by Schering-Plough Corporation, and
MACUGEN(R), marketed by OSI Pharmaceuticals and Pfizer Inc. Enzon's
product-driven strategy includes an extensive drug development program
that leverages its proprietary technologies, including a
next-generation PEGylation platform that utilizes customized linkers
designed to release compounds at a controlled rate. Enzon complements
its internal research and development efforts with strategic
initiatives, such as partnerships designed to broaden its revenue base
or provide access to promising new technologies or product development
opportunities. Further information about Enzon and this press release
can be found on the Company's web site at www.enzon.com.
There are forward-looking statements contained herein that are not
based on historical fact, including without limitation statements
containing the words "believes," "may," "plans," "will," "estimate,"
"continue," "anticipates," "intends," "expects," and similar
expressions. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results,
events or developments to be materially different from the future
results, events or developments discussed above. Such factors include
the risks described in Enzon's Form 10-K and Forms 10-Q on file with
the SEC. These factors should be considered carefully and readers are
cautioned not to place undue reliance on such forward-looking
statements. All information in this press release is as of February
28, 2006 and the Company undertakes no duty to update this
information.
Enzon Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months ended December 31, 2005 and 2004
(In thousands, except per share amounts)
(Unaudited)
December 31, December 31,
2005 2004
------------ ------------
Revenues:
Product sales, net $24,260 $26,962
Royalties 2,326 10,491
Contract manufacturing 3,066 5,463
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Total revenues 29,652 42,916
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Costs and expenses:
Cost of product sales and contract
manufacturing 11,252 12,381
Research and development 8,666 8,752
Selling, general and administrative 16,920 13,773
Amortization of acquired intangibles 3,347 3,394
Impairment of goodwill and intangibles 284,101 -
------------ ------------
Total costs and expenses 324,286 38,300
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Operating (loss) income (294,634) 4,616
------------ ------------
Other income (expense):
Investment income, net 1,616 973
Interest expense (4,895) (4,957)
Other, net 283 (540)
------------ ------------
(2,996) (4,524)
------------ ------------
(Loss) income before income tax (benefit)
provision (297,630) 92
Income tax (benefit) provision (12,059) 102
------------ ------------
Net loss $(285,571) $(10)
============ ============
Loss per common share - basic $(6.56) $(0.00)
============ ============
Loss per common share - diluted $(6.56) $(0.00)
============ ============
Weighted average shares - basic 43,523 43,483
============ ============
Weighted average shares - diluted 43,523 43,483
============ ============
Enzon Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Operations
Six Months ended December 31, 2005 and 2004
(In thousands, except per share amounts)
December 31,
December 31, 2004
2005 (Unaudited)
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Revenues:
Product sales, net $49,436 $54,489
Royalties 17,804 20,905
Contract manufacturing 6,459 7,976
------------ ------------
Total revenues 73,699 83,370
------------ ------------
Costs and expenses:
Cost of product sales and contract
manufacturing 23,216 23,282
Research and development 13,985 18,726
Selling, general and administrative 28,617 25,972
Amortization of acquired intangible assets 6,695 6,752
In-process research and development 10,000 -
Write down of goodwill and intangibles 284,101 -
------------ ------------
Total costs and expenses 366,614 74,732
------------ ------------
Operating income (292,915) 8,638
------------ ------------
Other income (expense):
Investment income, net 3,248 1,743
Interest expense (9,841) (9,914)
Other, net (2,776) (1,951)
------------ ------------
(9,369) (10,122)
------------ ------------
Loss before income tax benefit (302,284) (1,484)
Income tax benefit (10,947) (535)
------------ ------------
Net loss $(291,337) $(949)
============ ============
Loss per common share - basic $(6.69) $(0.02)
============ ============
Loss per common share - diluted $(6.69) $(0.02)
============ ============
Weighted average shares - basic 43,520 43,476
============ ============
Weighted average shares - diluted 43,520 43,476
============ ============
Enzon Pharmaceuticals, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2005 and June 30, 2005
(In thousands)
December 31, June 30,
2005 2005
------------ ------------
Assets
Current assets:
Cash and short-term investments $164,518 $158,747
Accounts receivable, net 14,087 25,638
Inventory 16,014 15,679
Other current assets 12,596 13,818
------------ ------------
Total current assets 207,215 213,882
------------ ------------
Property and equipment, net 34,978 33,214
------------ ------------
Other assets:
Marketable securities 62,059 66,384
Amortizable intangible assets, net 34,154 176,142
Goodwill - 150,985
Other long-term assets 2,939 10,254
------------ ------------
99,152 403,765
------------ ------------
Total assets $341,345 $650,861
============ ============
Liabilities and Stockholders' (Deficit)
Equity
Current and other liabilities $31,315 $48,359
Notes payable 394,000 399,000
Stockholders' (deficit) equity (83,970) 203,502
------------ ------------
Total liabilities and stockholders'
(deficit) equity $341,345 $650,861
============ ============
Common shares outstanding 43,787 43,781
============ ============
CONTACT: Enzon Pharmaceuticals, Inc.
Craig Tooman, 908-541-8759