Enzon Pharmaceuticals’ (ENZN) first quarter 2011 net loss of 7 cents per share (excluding special items) was narrower than the loss of 20 cents suffered in the year-ago quarter due to substantial cost cutting by management. The Zacks Consensus Estimate, however, indicated a lower loss of 1 cent.
On a reported basis (including special items), the company reported an income from continuing operations of 1 cent per share as against a gain of 29 cents per share in the prior-year quarter due to recognition of a huge one-time revenue of $40.9 million in the first quarter of 2010 following the divestiture of the specialty pharmaceutical business (January 2010).
The Speciality business included products like Oncaspar, Adagen, DepoCyt and Abelcet. Enzon continues to assist in the development of the next-generation Adagen and Oncaspar programs on a contracted basis despite the sale of the business. In the reported quarter, Enzon received a milestone payment of $5.0 million from Sigma-Tau Group, the purchaser of the specialty pharmaceutical business, following approval of Oncaspar for an additional indication. Including these one-time revenues, total revenue at Enzon was $18.0 million, which was slightly above the Zacks Consensus Estimate of $17 million. Total revenue was, however, down 69% year over year due to inclusion of the one-time revenue mentioned above.
Royalty revenue in the quarter declined around 9% to $11.8 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.
General and administrative costs in the reported quarter came down by approximately 49% to $5.1 million. The reduction was due to cost-cutting initiatives undertaken by the company.
Pipeline Update
Enzon has begun a phase I trial with its mRNA antagonist, EZN-4176, which targets androgen receptor, or AR antagonists for the treatment of patients with castration-resistant prostate cancer (CRPC).
In April 2011, pipeline candidate EZN-2208 was granted orphan drug status by the US Food and Drug Administration (FDA) for the treatment of neuroblastoma.
Our Recommendation
Currently, we have a Neutral recommendation on Enzon. The stock carries 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 with limited upside potential.
ENZON PHARMA (ENZN): Free Stock Analysis Report
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