Enzon Reports Q3 2009 Results

BRIDGEWATER, N.J. -- Enzon Pharmaceuticals, Inc. (Nasdaq: ENZN) today announced its third quarter 2009 financial results. For the three months ended September 30, 2009, Enzon reported a net income of $0.1 million or break-even on a diluted per-share basis, as compared to a net loss of $2.0 million or $0.05 on a diluted per-share basis for the third quarter of 2008. In the third quarter of 2009, the Products segment profitability grew 55% as compared to the third quarter of 2008. This was offset by a decline in revenues and profitability in the contract manufacturing segment. The Company also experienced a reduction of general and administrative costs from the third quarter of 2008. In 2008, the Company incurred expenses in connection with considered strategic initiatives.

"Net sales from our marketed products, in total, remain stable with unit growth in Oncaspar®, and Adagen®," said Jeffrey H. Buchalter, president and chief executive officer of Enzon. "The Company continues to identify and implement cost efficiencies across the organization."

Highlights

* In October 2009, PEGINTRON® received a recommendation for approval as a treatment in addition to surgery in patients with metastatic melanoma from the FDA Advisory Committee. Enzon receives royalties on worldwide sales of PEGINTRON.
* Also in October 2009, CIMZIA® received European approval for the treatment of adult patients with moderately to severely active rheumatoid arthritis (RA). Enzon receives royalties on worldwide sales of CIMZIA.
* The Company will present data on its clinical and preclinical pipeline programs at the upcoming European Organization for Research and Treatment of Cancer (EORTC) meeting in November.
* The Company filed the Investigational New Drug (IND) Application with the FDA for the next-generation Adagen program early November.

Products Segment

Net product sales for the three months ended September 30, 2009 were essentially the same as compared to the same period of 2008. Oncaspar and Adagen experienced unit growth. However, this quarter's net sales were adversely impacted by an accrual made regarding claims for certain prior period chargebacks currently being disputed by the Company. Oncaspar unit growth is mainly attributable to the continued use and adoption in new pediatric and adult hospital and cooperative group protocols. DepoCyt and Adagen tend to fluctuate from quarter to quarter due to the dynamics of dosing, scheduling and diagnoses of the products' patient populations. Abelcet continues to be under competitive pressure. This quarter, net sales were primarily impacted by price and to a lesser extent volume.

Royalties Segment

PEGINTRON royalties account for the majority of the Company's total royalty revenues. During the three months ended September 30, 2009, PEGINTRON royalty revenue declined due to the impact from foreign exchange. Recently, the Company had two positive events related to its royalty segment as previously noted. First, PEGINTRON received a recommendation for approval from the FDA Advisory Committee for melanoma. Second, the European Commission approved Cimzia, for the treatment of adult patients with moderately to severely active rheumatoid arthritis (RA).

Contract Manufacturing Segment

Contract manufacturing revenue for the three months ended September 30, 2009 was $2.3 million compared to $5.3 million for the comparable period of 2008. Revenues and earnings were affected primarily due to cancelled shipments and early discontinuation of processing for a CMO customer scheduled for termination in early 2010. The Company continues to evaluate new contract manufacturing opportunities.

Cost of Product Sales and Contract Manufacturing

The Company's cost of goods sold was $13.6 million for the three months ended September 30, 2009, compared to $14.5 million for the three months ended September 30, 2008. This quarter the Company experienced a write-down of inventories of finished goods and raw materials associated with the contract manufacturing agreement noted above. Excluding this adjustment, the Company's gross margin continues to be favorably impacted as a result of the consolidation of the manufacturing facilities.

Research and Development

For the three months ended September 30, 2009, research and development expenses were $15.8 million, relatively unchanged compared to the three months ended September 30, 2008. We continue our ongoing efforts in our research and development pipeline, PEG-SN38, the HIF-1 alpha antagonist, Survivin antagonist and other LNA- and PEGylation- based programs, as well as our next-generation lifecycle programs for Oncaspar and Adagen. We continue to enroll patients in our Phase II trial evaluating our PEG-SN38 compound in metastatic colorectal cancer patients. We also continue to enroll patients in our LNA antagonist Phase I programs for HIF-1 alpha and Survivin. We will present data on the LNA compounds, as well as PEG-SN38 at the upcoming EORTC meeting in November. This quarter 28% of the total research and development costs were associated with lifecycle programs and the efforts to improve the manufacturing processes and pharmaceutical properties of Oncaspar and Adagen. As previously stated, the Company recently filed the IND for the next-generation Adagen program.

Selling, General and Administrative

Selling and marketing expenses consist primarily of sales and marketing programs to support our sales force as well as medical affairs activities. Selling and marketing expenses for the three months ended September 30, 2009 declined 21 percent from the third quarter of 2008. The decrease reflects the continued selective spending in the selling and marketing programs. General and administrative expenses also decreased 28 percent to $7.7 million primarily due to expenses related to the Company's proposed strategic initiatives in 2008 and the initiatives the Company made in the beginning of 2009 to continue to improve efficiencies.

Restructuring Charge

Given the events in the CMO activities, the Company implemented cost reductions to minimize the financial impact going forward. This resulted in a reduction of employees at the Indianapolis facility. For the three months ended September 30, 2009 the Company incurred a total cost of $0.6 million which was a result of the employee severance and related benefits for affected employees. For the three months ended September 30, 2008, severance costs associated with the consolidation of the South Plainfield facility were $0.2 million.

Other Income (Expense)

Other income (expense) for the three months ended September 30, 2009 was a net expense of $1.4 million, as compared to net expense of $1.9 million for the three months ended September 30, 2008. Other income (expense) includes: net investment income, interest expense and other income or expense. Interest expense was $2.8 million for the three-month period ended September 30, 2009 compared to $3.0 million for the three-month period ended September 30, 2008. The reduction in interest expense is a result of the elimination of a portion of the outstanding 4 percent notes.

Income tax (benefit) provision

During the three months ended September 30, 2009 the Company recorded a net tax benefit of $0.8 million which includes a reimbursement related to certain unused research and alternative minimum tax credit carryforwards and a reduction of foreign taxes due to a transfer price adjustment.

Cash and Investments

Total cash reserves, which include cash and investments, were $201.3 million as of September 30, 2009, as compared to $206.9 million as of December 31, 2008. The decrease is primarily due the $15.6 million used to the repurchase $20.4 million of our 4 percent notes in 2009 offset by the cash provided by operating activities.

Adjusted Financial Results

For the three months ended September 30, 2009, there were no adjustments to the reported net income of $0.1 million or breakeven per diluted share, as compared to an adjusted net income of $0.7 million or $0.01 per diluted share for the three months ended September 30, 2008.

Conference Call and Webcast

Enzon will be hosting a live conference call today, November 3, 2009 at 10:00 am Eastern Time (ET). All interested parties may access the call by using the following information:

Domestic Dial-In Number: (877) 397-0272
International Dial-In Number: (719) 325-4861
Access Code: Enzon

The call will also be available via live audio webcast at the following site: http://investor.enzon.com/eventdetail.cfm?eventid=74303. Listeners should go to the website at least fifteen minutes before this event to download and install any necessary audio software. For those unable to attend the live audio webcast, a replay will be available beginning approximately one hour after the event. Additionally, a telephonic rebroadcast will also be available following the call. The rebroadcast will begin on Tuesday, November 3, 2009 at approximately 12:00 pm Eastern Time (ET) and end on Tuesday, November 10, 2009 at approximately 12:00 am Eastern Time (ET). It may be accessed using the following information:

Domestic Dial-In Number: (888) 203-1112
International Dial-In Number: (719) 457-0820
Replay Passcode: 6129874

About Enzon

Enzon Pharmaceuticals, Inc. is a biopharmaceutical company dedicated to developing, manufacturing and commercializing important medicines for patients with cancer and other life-threatening conditions. The Company has a portfolio of four marketed products, Oncaspar®, DepoCyt®, Abelcet® and Adagen®. Enzon's drug development programs utilize several cutting-edge approaches, including its industry-leading PEGylation technology platform and the Locked Nucleic Acid (LNA) technology. Enzon's PEGylation technology was used to develop two of its products, Oncaspar and Adagen, and has created a royalty revenue stream from licensing partnerships for other products developed using the technology. Enzon also engages in contract manufacturing for several pharmaceutical companies to broaden its revenue base. Further information about Enzon and this press release can be found on the Company's web site at www.enzon.com.