Enzon & Lessons of Biotech Divestitures (ENZN)

November 9, 2009 · Filed Under Financial 

Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) has entered into an agreement to sell its specialty pharmaceutical business to the Italian-owned company Sigma-Tau Group.  The sale price is quoted as too many different numbers by too many different wire sources, and we wanted to clarify this.  More importantly, this makes for a potentially very interesting case at Enzon.

The company listed in the release that the sale is for $300 million PLUS an additional amount of up to $27 million based on success milestones.  But more might come to the company as Enzon said that it will also receive royalty payments of 5% to 10% on incremental net sales above a 2009 baseline amount from Enzon’s four marketed specialty pharmaceutical products through 2014.

Without knowing what the ‘above a baseline amount’ formally is, there is some guesswork to be made.  Thomson Reuters has the company’s total 2009 sales projected at $193.2 million, and the consensus is calling for about 5% growth to $202.8 million for 2010.  It would be easy to say that these sales could throw another $2 million to $5 million toward the company, but getting anywhere close to a very large figure of $50 million almost seems impossible.

Enzon’s specialty pharmaceutical business includes four marketed products: Oncaspar®, Adagen®, DepoCyt®, and Abelcet®, as well as the manufacturing facility in Indianapolis, Indiana which will be purchased by a US subsidiary of Sigma-Tau Pharmaceuticals, Inc. Sigma-Tau Pharmaceuticals will distribute the products in the US market.

So, what is left at Enzon?  The company has $250 million in long-term debt.  It now lists its cash, cash equivalents, and investments as over $201 million as of September 30.  After the sale of these assets, Enzon’s businesses will consist of its royalties, Peg SN38 and its LNA and PEG technology platforms.  And the company noted that the board is evaluating its options to return most of the value of this sale to shareholders.  It plans to focus on its royalty business, its pipeline, and its technology platforms.  The company said specifically that the transaction “may be deemed to constitute a sale of substantially all of Enzon’s assets” under Delaware law and, therefore, is subject to majority shareholder vote.  The deal is also subject to sigma tau’s receipt of funds under a bank commitment letter and regulatory approval.  Enzon said it sees and expected completion date some time during the first quarter of 2010.

The good news is that this stock is already close to a 52-week high.  The bad news is that Enzon shares are only up 4.6% at $9.39 today and we have only seen 740,000 shares trade hands as of 12:30 PM EST versus an average volume of around 600,000 shares. Last Wednesday this one traded 1,092,600 shares of common stock and its closed up $0.02 at $8.45.

The real value depends upon how successful the remaining operations at Enzon do after this deal is closed.  And that is all a ways out and will have many variables.  It seems that this may be a fair deal for shareholders looking for a return of capital, but it doesn’t look like anyone is rushing in to pay much higher prices for what is left of the company.

Jon C. Ogg
November 9, 2009

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