Enzon Pharmaceuticals, Inc. (ENZN)

Q1 2010 Earnings Call Transcript

May 10, 2010 5:00 pm ET

Executives

Craig Tooman – EVP of Finance, CFO

Alex Denner – Chairman

Ivan Horak – President, R&D and Chief Scientific Officer

Ralph Del Campo – COO

Richard Mulligan – Director

Analysts

Jim Tumbering – BMO Capital Markets

Caroline Corner – William Smith & Co.

Jeffrey Cohen – C.K. Cooper & Company

Ted Wachtell – Millennium Partners

Richard Mansouri – DellaCamera Capital

Brad Gold [ph] – Capital AU Consultants [ph]

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Enzon's first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to turn the program over to our speaker, Craig Tooman, Executive Vice President and Chief Financial Officer of Enzon Pharmaceuticals. Sir, please go ahead.

Craig Tooman

Good morning and thank you for joining us today. Very pleased to be joined on the call today by my colleagues Ralph Del Campo, our Chief Operating Officer and Dr. Ivan Horak, our President of Research and Development. We’re also pleased to have two members of our executive committee participating in our call today, our Chairman, Dr. Alex Denner and Professor, Richard Mulligan.

Let me start by reminding you that during today’s conference call, we will be making forward-looking statements that represent the company's intentions, expectations, or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's press release and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. Furthermore, information discussed on today's call is accurate as of today, and we do not intend to update it.

Now I am very pleased to turn over the call to our Chairman of the Board, Dr. Alex Denner. Alex?

Alex Denner

Thanks, Craig. Good afternoon everyone and thank you for joining the call today. The first quarter marked the close of a landmark transaction for Enzon, the sale of its specialty pharmaceutical business for $300 million in cash and up to $27 million in milestone payments in a potential royalty stream.

This sale has transformed the company, both financially and operationally, into a biopharmaceutical company dedicated to the development of our oncology medicines, PEG-SN38 and the LNA products. The company also continues to enjoy a meaningful royalty stream from currently marketed products utilizing Enzon's PEG technology, including PEGINTRON, Macugen and Cimzia.

These assets along with significant cash on the balance sheet provide Enzon with a number of options for returning value to its shareholders. To that end, the Board and management are actively working to determine a strategy which provides a greatest potential for shareholder return using these various financial and strategic assets. We also continue to buy back stock as one component of the strategy to return value to shareholders. To be clear, we are fully committed to maximizing value for all Enzon’s shareholders.

In a moment, Dr. Ivan Horak will provide you with an update on the promising product candidates that now define Enzon, but first let me turn the call back over to Craig to discuss the company's first quarter financial performance.

Craig Tooman

Thank you, and as Alex stated the completion of the sale of the specialty pharmaceutical business in the first quarter transformed Enzon from a specialty pharma company to a company that is exclusively focused on advancing its novel pipeline. This change had a significant impact on the first quarter earnings and will change the dynamics of future earnings.

I'd like to start by pointing out some large unusual items that you will notice in the earnings statement this quarter. First in revenues, you will notice that we have three new line items, sale of in-process R&D, contract research and development, and miscellaneous revenue.

The first item, in-process R&D, is related to the sale of the specialty business. As part of the price for the specific business, $40.9 million was consideration for the ongoing next-generation Oncaspar and Adagen programs. As these programs are ongoing and unapproved they are classified as in-process R&D. They're also considered part of the continuing business since we continue to assist in the development of the programs to a services agreement and we are in the business of discovering and developing medicines.

The next two revenue lines are related to the transition services Enzon is performing for sigma-tau, the purchaser of the specialty pharmaceutical business for continuing R&D related to the next-generation Oncaspar and Adagen programs and various G&A activities. The agreement provides for Enzon to receive a markup on those expenses that incurs as a result of the services provided to sigma-tau. The revenue reported is a gross up of expenses at the agreed-upon rate.

Now let me turn to our R&D investments made this quarter. As you can see from the release, Enzon incurred $11.5 million for research and development activities associated with our remaining pipeline programs. These programs include our PEGylation technology, PEG-SN38, HIF-1 alpha, survivin and the additional six RNA antagonists licensed from Santaris.

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. During the first quarter of 2010, we initiated enrollment in a Phase II study evaluating PEG-SN38 in metastatic breast cancer and a Phase I study for pediatric cancer. We also continued to enroll patients in our Phase II study for colorectal cancer.

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