ENZON PHARMACEUTICALS, INC. Unless the context requires otherwise, references in this Quarterly Report on
Form 10-Q to "Enzon," the "Company," "we," "us," or "our" and similar terms mean
Forward-Looking Information and Factors That May Affect Future Results
The following discussion contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in the following discussion, other than statements that are purely historical, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans," or "intends" or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements, including the risks and uncertainties set forth in Item 1A. Risk Factors in our 2020 Annual Report on Form 10-K. These risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance can be given that the future results covered by the forward-looking statements will be achieved.
The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars and not the rounded millions of dollars reflected in this section.
Overview
In
Historically, we had received royalty revenues from licensing arrangements with other companies primarily related to sales of certain drug products that utilized Enzon's proprietary technology. In recent years, we have had no clinical operations and limited corporate operations. Enzon has a marketing agreement relating to the drug Vicineum, which, if approved, will, potentially, generate milestone and royalty payments to us in the future. We cannot assure you that we will earn material future royalties or milestones.
We have a marketing agreement with
On
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Acquisition Activities
Our Board of Directors and our management are actively involved in pursuing, sourcing, reviewing and evaluating various potential acquisition transactions consistent with our long-term strategy. Our management and Board of Directors have made a number of contacts and engaged in discussions with principals of individual companies and financial advisors on behalf of various individual companies, while continuing to evaluate potential transactions. To date, we have not developed any actionable transactions. We will continue to update our stockholders as material developments arise.
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Throughout this Management's Discussion and Analysis, the primary focus is on our results of operations, cash flows and financial condition. The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars.
Results of Operations Revenues:
Milestones and Royalties (in thousands of dollars):
Three Months Ended
March 31,
Percent
2021 Change 2020
Milestone and royalty revenue
In the three months ended
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Merck has not yet reported royalty revenues earned by us for product sales
and/or recoupments for returns and rebates for the quarter ended
Operating Expenses:
General and Administrative (in thousands of dollars):
Three Months Ended March 31,
Percent
2021 Change 2020
General and administrative $ 370 53 % $ 242 General and administrative expenses increased by approximately
Tax Expense:
We incurred a tax expense of approximately
Liquidity and Capital Resources
Our current source of liquidity is our existing cash on hand, which includes the
approximately
While we are positioned as a public company acquisition vehicle, where we can become an acquisition platform and more fully utilize our NOLs and enhance stockholder value, we cannot assure you that we will succeed in making acquisitions that are profitable and that will enable us to utilize our NOLs.
Cash provided by operating activities represents a net loss, as adjusted for
certain non-cash items including the effect of changes in operating assets and
liabilities. Cash provided by operating activities during the three months ended
The net effect of the foregoing was an increase of cash of approximately
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Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually limited
purposes. As of
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our consolidated financial statements are presented in accordance with
accounting principles that are generally accepted in the
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.
Revenues
Royalties under our license agreements with third-parties and pursuant to the sale of our former specialty pharmaceutical business are recognized when reasonably determinable and earned through the sale of the product by the third-party and collection is reasonably assured. Notification from the third-party licensee of the royalties earned under the license agreement is the basis for royalty revenue recognition. This information generally is received from the licensees in the quarter subsequent to the period in which the sales occur.
Contingent payments due under the asset purchase agreement for the sale of our former specialty pharmaceutical business are recognized as revenue when the milestone has been achieved, collection is assured, such payments are non-refundable and no further effort is required on the part of the Company or the other party to complete the earning process.
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Income Taxes
Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance on net deferred tax assets is
provided for when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. As of
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Forward-Looking Information and Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in the Quarterly Report on Form 10-Q, other than statements that are purely historical, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as the words "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans" or "intends" or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements, including, but not limited to, the following risks and uncertainties:
· We may be unsuccessful in our strategy to fully utilize our NOLs and
other tax assets and enhance stockholder value as a public company
acquisition vehicle.
· Our sources of revenue are limited and we may incur losses for the
foreseeable future.
· In recent years, we derived most of our royalty revenues from continued
sales of PegIntron, which have been in sharp decline. In addition, our
right to receive royalties on U.S. and European sales of PegIntron
expired in 2016 and 2018, respectively, which has negatively impacted
our royalty revenues.
· Our rights to receive royalties on sales of PegIntron and sales of
other drug products have expired in various jurisdictions and, except
for Vicineum, will, by 2024, expire world-wide. We currently do not
anticipate any significant royalties from other sources, but we may
acquire new sources of royalty revenues.
· The unprecedented actions taken globally to control the spread of COVID
19, as well as the uncertainty surrounding the success of global
vaccination efforts, may materially and adversely affect our future
right to receive licensing fees, milestone payments and royalties on
product candidates that are being developed by third parties.
· We have reallocated all employment responsibilities and outsourced all
corporate functions, which makes us more dependent on third parties to
perform these corporate functions.
· We may be subject to a variety of types of product liability or other
claims based on allegations that the use of our product candidates by
participants in our previously conducted clinical trials has resulted
in adverse effects, and our insurance may not cover all product
liability or other claims.
· Our revenues largely depend on proprietary rights, which may offer only
limited protection against the development of competing products.
· We are party to license agreements whereby we may receive royalties and
or milestone payments from products subject to regulatory approval.
· The price of our common stock has been, and may continue to be, volatile.
· Our common stock is quoted on the OTCQX market of the OTC Markets
Group, Inc., which has a very limited trading market and, therefore,
market liquidity for our common stock is low and our stockholders'
ability to sell their shares of our common stock may be limited.
· The declaration of dividends is within the discretion of our Board of
Directors, subject to any applicable limitations under Delaware
corporate law, as well as the requirements of the Series C Preferred
Stock. Our ability to pay dividends in the future depends on, among
other things, our fulfillment of the conditions of the Series C
Preferred Stock, fluctuating royalty revenues, our ability to acquire
other revenue sources and our ability to manage expenses, including
costs relating to our ongoing operations.
· We have adopted a Section 382 rights plan, which may discourage a
corporate takeover.
· Anti-takeover provisions in our charter documents and under Delaware
corporate law may make it more difficult to acquire us, even though
such acquisitions may be beneficial to our stockholders.
· The terms of our outstanding Series C Preferred Stock and the issuance
of additional series of preferred stock may adversely affect rights of
our common stockholders.
· The interests of our significant stockholders may conflict with the
interests of other stockholders.
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· If we experience an "ownership change," as defined in Section 382 of
the Internal Revenue Code of 1986, as amended, our ability to fully
utilize our NOLs on an annual basis will be substantially limited, and
the timing of the usage of the NOLs could be substantially delayed,
which could therefore significantly impair the value of those benefits.
· If we experience a "Change of Control," as defined in Certificate of
Designation of the Series C Preferred Stock, the holders of the Series
C Preferred Stock shall have the right, at such holder's option, to
require the Company to redeem at the Liquidation Preference then in
effect all or a portion of such holder's shares of Series C Preferred
Stock, which would negatively impact our available cash.
A more detailed discussion of these risks and uncertainties and other factors
that could affect results is contained in our filings with the .
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