Enzon Pharmaceuticals’ ( “>ENZN ) fourth quarter 2010 net loss of 14 cents per share (excluding special items) was wider than the Zacks Consensus Estimate, which indicated a loss of 8 cents. The loss, however, compared favorably with a loss of 21 cents suffered in the year-ago quarter.
On a reported basis (including special items), the company recorded a loss from continuing operations of 17 cents per share as against a loss of 32 cents per share in the year-ago quarter. The narrower loss in the quarter emanated from the divestiture of the specialty pharmaceutical business (January 2010) and subsequent cost savings at Enzon.
For full year 2010, Enzon reported an adjusted loss per share of 59 cents, an improvement of 27% over the prior year. The Zacks Consensus Estimate had hinted at a lower loss of 33 cents a share. Total revenue reported by the company was $97.8 million, above the Zacks Consensus Estimate of $78 million. Total revenue included $40.9 million as operating revenue from in-process R&D related to the sale of the specialty pharmaceutical business. Excluding this, revenue was $56.9 million.
Quarterly Details
Total revenue for the quarter climbed 2.7% to $12.5 million. However, revenues were short of the Zacks Consensus Estimate of $14 million. Bulk of the revenues (approximately 84%) came through royalties, which declined 13.5% to $10.5 million in the quarter.
Enzon earns the majority of its royalty revenues from the sale of PegIntron, marketed by Merck & Co. (MRK), for treating patients suffering from hepatitis C virus (HCV). The decline in royalty revenues in the reported quarter was attributable to reduced sales of the drug. Moreover, the end of royalties on sales of Pegasys in October 2009 also cast a negative impact.
General and administrative costs in the reported quarter came down by approximately 52% to $4.9 million. The reduction was due to cost cutting initiatives undertaken by the company. Research and development expenses incurred increased 21% in the reported quarter to $14.0 million due to increased spending on pipeline development.
Pipeline Update
Enzon plans to continue enrolling patients in phase II trials of pipeline candidate PEG-SN38 for the treatment of breast and colorectal cancer. Enzon is also conducting phase I trials with PEG-SN38 for the treatment of cancer in pediatric patients.
Our Recommendation
Currently, we have a Neutral recommendation on Enzon, which is supported by a Zacks #3 Rank (short “Hold” rating). We are pleased with Enzon’s improved liquidity position arising from the sale of its specialty pharmaceutical business and its efforts to develop the pipeline. The successful development and subsequent commercialization of the pipeline would be a boost for the stock. However, we remain concerned about the nascent stage of its pipeline and Enzon’s dependence on royalties from sales of Merck’s PegIntron. Hence, we believe that the shares are fairly valued at current levels.
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