We have maintained our Neutral recommendation on Enzon Pharmaceuticals, Inc. (ENZN) with a target price of $12.00 after announcement of fourth quarter and full year 2010 results.
Enzon Pharmaceuticals’ 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 saw a loss from continuing operations of 17 cents 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.
The debt burden at Enzon has reduced significantly following the sale of its specialty pharmaceutical business in 2010 for $300 million. The improved liquidity position at Enzon has enabled the company to repurchase shares.
We are encouraged by the company’s efforts to develop its pipeline. The company’s pipeline candidates include PEG-SN38, hypoxia-inducible factor1 (HIF-1) alpha, survivin antagonists and multiple messenger RNA (mRNA) antagonists based on the locked nucleic acid (LNA) technology for cancer indications; all in early or middle stages of development. The most promising pipeline candidate is PEG-SN38 for which Enzon is conducting phase II trials for the treatment of metastatic breast cancer and colorectal cancer and phase I trials for cancer in pediatric patients. The successful development and subsequent commercialization of the pipeline candidates would be a boost for the stock.
Enzon earns royalties from several products manufactured using its proprietary PEGylation technology–PegIntron, marketed by Merck & Company, Inc (MRK), Macugen marketed by Astellas Pharma/Pfizer Inc.(PFE) and Cimzia marketed by UCB Pharma (UCBJF).
Following the sale of the specialty pharmaceutical business in 2010, Enzon has no marketed product and its revenues consist primarily of royalties. In the fourth quarter royalties contributed about 84% to the company’s total revenues. Majority of the royalty revenue comes from PegIntron sales, which declined approximately 13% in the most recent quarter due to reduced sales of the drug. Declining sales of PegIntron could impact the company’s top line further.
Vertex Pharmaceuticals Incorporated /Johnson & Johnson’s (VRTX/JNJ) Telaprevir and Merck’s (MRK) boceprevir which are under review at the FDA are expected to be approved in mid-2011. These candidates will pose strong competition to PegIntron, reducing royalties from PegIntron sales further.
Even though Enzon’s efforts to develop its oncology pipeline are encouraging, we remain concerned as the compounds have an early-stage development status. These candidates are several years away from approval and commercialization. We believe Enzon must deliver new products in order to offset the dwindling royalty revenue.
ENZON PHARMA (ENZN): Free Stock Analysis Report
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MERCK & CO INC (MRK): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
VERTEX PHARM (VRTX): Free Stock Analysis Report
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