Enzon Beats Estimates

During the fourth quarter of 2009, Enzon (ENZN: 9.31 -0.06 -0.64%) reported breakeven earnings, better than the Zacks Consensus Estimate of a loss of 4 cents and a loss of 1 cent in the year-ago period. For the full year, loss per share (after adjustment of gain related to debt repurchase) came in at 8 cents, down from 10 cents reported in 2008.
 
Enzon’s revenue for the reported quarter declined 9% to $44.2 million compared to the corresponding period last year. However, gross income of $34 million was almost unchanged compared to $34.7 million in the year-ago period primarily due to a 25.8% year-over-year reduction in cost of products sold. Better efficiencies resulting from consolidation in the manufacturing segment led to the reduction.
 
Enzon reported product sales of $28.2 million, almost unchanged from the fourth quarter of 2008. Royalty revenue which came in at $13 million in the reported quarter declined 15%. Enzon earns a majority of its royalty revenue from the sales of Pegintron, marketed by Merck (MRK: 37.29 -0.05 -0.13%).

Since 2008, Enzon has begun to receive royalties on another product, Cimzia for the treatment of Crohn’s disease. In 2009, the drug received approval in the US and Europe for the treatment of moderate to severe rheumatoid arthritis. We believe this approval should boost sales of the drug, which in turn will increase royalty income.
 
Revenue from the contract manufacturing segment declined 40% to $3 million in the fourth quarter primarily due to the early termination of a manufacturing contract.
 
In January 2010, Enzon sold its specialty pharmaceutical business to Sigma-Tau Pharmaceuticals for $300 million and another $27 million based on certain milestones. Enzon is also eligible to receive royalties of 5-10% on incremental net sales above a 2009 baseline amount from its four marketed specialty pharmaceutical products through 2014.

The specialty pharmaceutical business includes Enzon’s current marketed products - Oncaspar, Adagen, DepoCyt and Abelcet as well as the manufacturing facility in Indianapolis, Indiana. The contract manufacturing segment is also a part of the sold business. Hence from the next quarter, Enzon’s revenue will primarily consist of royalties.
 
Enzon exited 2009 with $199.7 million of total cash reserves, which include cash, cash equivalents, short-term investments and marketable securities, marginally down from $206.9 million as of December 31, 2008.  During 2009, the company repurchased $20.4 million of its outstanding 4% notes due in 2013 at a significant discount. In Dec 2009, Enzon also repurchased 193,184 shares of its common stock for $2 million.