UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM 10-K
| x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the Fiscal Year Ended December 31, 2019
OR
| ¨ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission file number: 0-12957
Enzon Pharmaceuticals,
Inc.
(Exact name of registrant as specified in its charter)
| Delaware |
|
22-2372868 |
(State
or other jurisdiction of incorporation or
organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
| 20
Commerce Drive (Suite 135), Cranford, New Jersey |
|
07016 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s telephone number, including area code: (732)
980-4500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act: Common
Stock, $0.01 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. ¨ Yes
x No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.
¨ Yes
x No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. x Yes
¨ No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such
files). x Yes
¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act:
| Large
accelerated filer ¨ |
Accelerated
filer ¨ |
| Non-accelerated
filer x |
Smaller
reporting company x |
| |
Emerging
growth company ¨ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ¨
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). ¨ Yes
x No
The aggregate market value of the Common Stock, $0.01 par value per
share (“Common Stock”), held by non-affiliates of the registrant
was approximately $11,937,942 as of June 28, 2019, based upon the
closing sale price quoted on the OTCQX market of the OTC Markets
Group, Inc. of $0.27 per share reported for such date. Shares of
Common Stock held by each executive officer and director of the
registrant as of June 28, 2019 have been excluded in that such
shares may be deemed to be owned by affiliates. This determination
of affiliate status is not necessarily a conclusive determination
for other purposes.
There were 44,214,603 shares of Common Stock issued and outstanding
as of February 7,
2020.
DOCUMENTS INCORPORATED BY REFERENCE
If the registrant files a definitive proxy statement relating to
its 2020 Annual Meeting of Stockholders with the Commission not
later than 120 days after December 31, 2019, portions of such
definitive proxy statement will be incorporated by reference into
Part III of this Annual Report on Form 10-K where indicated.
However, if such definitive proxy statement is not filed with the
Commission in such 120-day period, the registrant will file an
amendment to this Annual Report on Form 10-K with the Commission
not later than the end of such 120-day period to include the
information required by Part III of Form 10-K.
ENZON PHARMACEUTICALS, INC.
2019 Annual Report on Form 10-K
Table of Contents
Unless the context requires otherwise, references in this Annual
Report on Form 10-K to “Enzon,” the “Company,” “we,” “us,” or “our”
and similar terms mean Enzon Pharmaceuticals, Inc. and its
subsidiaries.
This Annual Report on Form 10-K contains forward-looking statements
within the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995. All statements contained in this
Annual Report on Form 10-K, 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 of this 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.
All information in this Annual Report on Form 10-K speaks only as
of the date of the filing of this report, unless otherwise
indicated. We do not intend to update this information to reflect
events after the date of this report.
Our website is located at www.enzon.com. Copies of our
Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q,
our Current Reports on Form 8-K and our other reports filed with
the Securities and Exchange Commission, or the SEC, can be
obtained, free of charge as soon as reasonably practicable after
such material is electronically filed with, or furnished to the
SEC, by calling (732) 980-4500, through the SEC’s website by
clicking the SEC Filings link from the Investors and Media page on
our website at www.enzon.com or directly from the SEC’s
website at www.sec.gov . Our website and the information
contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ENZON PHARMACEUTICALS, INC.
PART I.
Item 1. Business
Enzon Pharmaceuticals, Inc. (together with its subsidiaries, the
“Company,” “Enzon,” “we” or “us”), manages its sources of royalty
revenues from existing licensing arrangements with other companies
primarily related to sales of certain drug products that utilize
our proprietary technology. We currently have no clinical
operations and limited corporate operations and have no intention of resuming any clinical
development activities or acquiring new sources of royalty
revenues. We have no assurance that we will earn material future
royalties or milestones.
In 2019,
we earned limited revenues primarily from royalties and we do not
expect to generate material recurring revenues in future periods.
In July 2019, we received a $7.0 million milestone payment that had
been earned and recorded as revenue in December 2018 when
the U.S. Food
and Drug Administration (“FDA”) approved the
Biologics
License Application (“BLA”) filed by Servier
IP UK
Limited (“Servier”)
for
calaspargase pegol – mknl
(brand name ASPARLAS™), also known as SC Oncaspar,
as a
component of a multi-agent chemotherapeutic regimen for the
treatment of acute lymphoblastic leukemia in pediatric and young
adult patients age 1 month to 21 years.
The primary source of our royalties and milestone revenues in 2018
was the $7 million milestone payment due from Servier. After being
notified that the FDA had approved Servier’s BLA on December 20,
2018, we recorded revenue and a milestone receivable of $7.0
million at December 31, 2018. Servier, a wholly-owned
indirect subsidiary of Les Laboratoires Servier, was the successor
in interest to Sigma-Tau
Finanziaria S.p.A. (“Sigma-Tau”) under an asset purchase agreement
(“Asset Purchase Agreement”) entered into in November 2009 by and
among Klee Pharmaceuticals,
Inc., Defiante Farmacêutica, S.A. and Sigma-Tau, on the one hand,
and the Company, on the other hand.
Under a letter agreement
between the Company and Servier dated January 30, 2019,
Servier confirmed its
obligation under the Asset Purchase Agreement to pay the $7.0
million milestone payment to the Company, which it agreed to do
following the parties’ completion of procedures for claiming
benefits under the double tax treaty between the United States and
the United Kingdom. The Company received that $7.0 million
milestone payment, which had been recorded as a current receivable
on December 31, 2018, in July 2019. Under the letter agreement, the
Company also agreed to waive Servier’s obligations under the Asset
Purchase Agreement to pursue the development of SC Oncaspar in
Europe and the approval of SC Oncaspar by the European Medicines
Agency (“EMEA”), provided that the Company did not waive its right
to any applicable milestone payment it was due, if any, upon EMEA
approval of SC Oncaspar. At the present time, we are not aware of
any plans that Servier may have to seek EMEA approval of SC
Oncaspar.
In 2017, the Company and Nektar
Therapeutics, Inc. (“Nektar”) entered into a second
amendment (the “Nektar Second Amendment”) to their Cross-License
and Option Agreement (the “Nektar License Agreement”). Pursuant to
the Nektar Second Amendment, Nektar paid the Company the sum of
$7.0 million in full satisfaction of its obligation to make future
royalty payments to the Company under the Nektar License Agreement.
The Company received the full $7.0 million payment from Nektar in
2017, which was recorded as non-recurring milestone revenue.
Prior to 2017, our primary source of royalty revenues was derived
from sales of PegIntron, which is marketed by Merck & Co.,
Inc. (“Merck”). At December 31, 2018, according to Merck, we had a
liability to Merck of approximately $439,000 based, primarily, on
Merck’s assertions regarding recoupments related to prior returns
and rebates. In the first quarter of 2019, net royalties from
PegIntron were negative $51,000 due to returns and rebates
exceeding the amount of royalties earned. In the second, third and
fourth quarters of 2019, net royalty revenues from sales of
PegIntron were $142,000, $2,000 and $22,000, respectively. As such,
as asserted by Merck, the Company’s liability to Merck was $324,000
at December 31, 2019, as discussed in Note 4 to the Consolidated
Financial Statements. We believe that we will receive minimal
additional royalties from Merck and may be charged with additional
chargebacks from returns and rebates in amounts that, based on
current estimates, are not expected to be material.
In April 2013, we announced that we intended to distribute excess
cash, expected to arise from royalty revenues, in the form of
periodic dividends to stockholders. Since that time, we have paid
out an aggregate of approximately $149 million in dividends
(including approximately $8.0 million in 2019) to our shareholders.
See Note 6 to our Consolidated Financial Statements.
On February 4, 2016, our Board of Directors (the “Board”) adopted a
Plan of Liquidation and Dissolution (the “Plan of Liquidation and
Dissolution”), the implementation of which has been postponed. (See
Note 14 to the Consolidated Financial Statements.)
We have a marketing agreement
with Micromet AG (“Micromet”), now part of Amgen, Inc. (the
“Micromet Marketing Agreement”), that was entered into in 2004,
under which Micromet is the exclusive marketer of the parties’
combined intellectual property portfolio in the field of
single-chain antibody technology. Under the Micromet
Marketing Agreement, the parties agreed to share, on an equal
basis, in any licensing fees, milestone payments and royalty
revenue received by Micromet in connection with any licenses of the
patents within the portfolio by Micromet to any third party during
the term of the collaboration. To our knowledge, Micromet has a
license agreement with Viventia Biotech (Barbados) Inc.
(“Viventia”), now part of Sesen Bio, Inc. (“Sesen”) that was
entered into in 2005, under which Micromet granted Viventia
nonexclusive rights, with certain sublicense rights, for know-how
and patents allowing exploitation of certain single chain antibody
products, which patents cover some key aspects of Vicinium, one of
Sesen’s drug candidates that is in Phase 3 clinical trials being
evaluated for the treatment of patients with non-muscle invasive
bladder cancer. To our knowledge, Micromet is entitled to receive
(i) certain milestone payments with respect to the filing of a new
drug application (“NDA”) for Vicinium with the FDA or the filing of
a marketing approval application for Vicinium with the EMEA; (ii)
certain milestone payments with respect to the first commercial
sale of Vicinium in the U.S. or Europe and (iii) certain royalties
on net sales for ten years from the first commercial sale of
Vicinium. Pursuant to the Micromet Marketing Agreement, we would be
entitled to a 50% share of these milestone payments and royalties
received by Micromet. Due to the challenges associated with
developing and obtaining approval for drug products, there is
substantial uncertainty whether any of these milestones will be
achieved. We also have no control over the time, resources and
effort that Sesen may devote to its programs and limited access to
information regarding or resulting from such programs. Accordingly,
there can be no assurance that we will receive any of the milestone
or royalty payments under the Micromet Marketing Agreement. We will
not recognize revenue until all revenue recognition requirements
are met.
We maintain our principal executive offices at 20 Commerce Drive,
Suite 135, Cranford, New Jersey, 07016 through a lease agreement
for space and services with Regus Management Group, LLC (“Regus”)
and also have an office facility at 3556 Main Street, Manchester,
VT, 05225 pursuant to an office rental agreement with Equinox
Junior, LLC (“Equinox”). (See Note 13 to the Consolidated Financial
Statements.)
Plan of Dissolution
On February 4, 2016, our Board adopted the Plan of Liquidation and
Dissolution pursuant to which we would, subject to obtaining
requisite stockholder approval, be liquidated and dissolved in
accordance with Sections 280 and 281(a) of the General Corporation
Law of the State of Delaware. In approving the Plan of Liquidation
and Dissolution, our Board had considered, among other factors, our
ability to obtain no-action relief from the Securities and Exchange
Commission (the “SEC”) to suspend certain of our reporting
obligations under the Securities Exchange Act of 1934, as amended,
and the anticipated cost savings if such relief is granted by the
SEC. Upon further review, our Board determined that it would be
fair, advisable and in the best interests of the Company and its
stockholders to postpone seeking stockholder approval of the Plan
of Liquidation and Dissolution until a later time to be determined
by our Board.
From time to
time, our Board reviews our status and prospects in deciding on the
timing of our dissolution and liquidation pursuant to the Plan of
Liquidation and Dissolution. If our Board determines to seek
stockholder approval of such plan and such plan is approved by our
stockholders and implemented by us, it is expected that our
corporate existence will continue for the purpose of winding up our
business and affairs for at least three years. We have
forecasted minimal or no royalty or milestone revenues for the
foreseeable future. In light of the uncertainty as to whether any
of the milestones under the Micromet Marketing Agreement would be
achieved, this forecast assumes that we would not receive any
milestone or royalty payments under the Micromet Marketing
Agreement.
ROYALTIES
Until recently, we received royalty revenues from existing
licensing arrangements with Merck, primarily related to sales of
two marketed drug products, namely, PegIntron ® and
Sylatron ®. Until 2017, in recent years, royalty
revenues from Merck were our primary source of revenues. In 2018,
we earned a $7.0 million milestone payment from Servier in
connection with its receipt of FDA approval for ASPARLAS, also
known as SC Oncaspar. In 2017, we earned $7.0 million in royalties
from Nektar in connection with our entering into the Nektar Second
Amendment. Royalty revenues from sales of PegIntron accounted for
approximately 55% and (2)% of our total revenues in each of the
years ended December 31, 2019 and 2018, respectively, net of
adjustments for Merck’s recoupment of previously overpaid
royalties. Our right to receive royalties on U.S. and European
sales of PegIntron expired in 2016 and 2018, respectively, and will
expire in Malaysia in 2020, Japan in 2021 and Chile in 2024. In
October 2019, Merck informed us that due to lack of PegIntron
sales, they do not expect that we will earn any future
royalties.
We out-licensed our proprietary PEGylation and single-chain
antibody, or SCA, technologies on our own and through agreements
with Nektar and Micromet AG (“Micromet”). Micromet was acquired by
Amgen in 2012. Under our Cross-License and Option Agreement with
Nektar, Nektar had the lead role in granting sublicenses for
certain of our PEGylation patents and we received royalties on
sales of any approved product for which a sublicense had been
granted. Pursuant to the Nektar Second Amendment, we are no longer
entitled to any royalties or immunity fees from Nektar under the
Nektar License Agreement.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
We have a portfolio of issued U.S. patents, many of which have
foreign counterparts. Of the patents owned or exclusively licensed
by us, one relates to PegIntron. The patent related to PegIntron
(peginterferon alfa-2b) expired in the U.S. in 2016 and expired
outside of the U.S. in 2018 (including any patent term extensions),
except for Japan, where the patent was extended until 2021 and
Malaysia and Chile, where the patent expires in 2020 and 2024,
respectively. Although we believe that our patents provide certain
protection from competition and we may be entitled to potential
royalty rights and/or milestone payments, we cannot assure you that
such patents will be of substantial protection or commercial
benefit to us, will afford us adequate protection from competing
products, or will not be challenged or declared invalid. In
addition, we cannot assure you that additional U.S. patents or
foreign patent equivalents will be issued to us.
Patents for individual products extend for varying periods
according to the date of patent filing or grant and the legal term
of patents in the various countries where patent protection is
obtained. Many of our patents have expired or are nearing the end
of their patent protection period. The actual protection afforded
by a patent, which can vary from country to country, depends upon
the type of patent, the scope of its coverage and the availability
of legal remedies in the country.
EMPLOYEES AND EXECUTIVE OFFICERS
We currently have no employees. Our executive officers provide
services to us on a consulting basis.
Item 1A. Risk Factors
Throughout this Annual Report on Form 10-K, we have made
forward-looking statements in an attempt to better enable the
reader to understand our future prospects and make informed
judgments. By their nature, forward-looking statements are subject
to numerous factors that may influence outcomes or even prevent
their eventual realization. Such factors may be external to the
Company and entirely outside of our control.
We cannot guarantee that our assumptions and expectations will be
correct. Failure of events to be achieved or of certain underlying
assumptions to prove accurate could cause actual results to vary
materially from past results and those anticipated or projected. We
do not intend to update forward-looking statements.
Certain risks and uncertainties are discussed below. However, it is
not possible to predict or identify all such factors. Accordingly,
you should not consider this recitation to be complete.
Risks Relating to the Company and its Operations
Our sources of revenue are limited and we expect to incur losses
for the foreseeable future; unanticipated liabilities and expenses
could adversely affect our ability to continue operations or make
expected distributions.
We have
incurred losses in the current period and have limited sources of
revenues. We have been informed by Merck that there will likely be
no or minimal additional sales of PegIntron and we would
likely receive no further royalties, although we may remain
potentially liable to Merck for product returns and rebates. Based
on current estimates, we do not expect any liability for those
returns and rebates to be material. Moreover, our right to receive
royalty revenues from other products is limited and we currently do
not intend to acquire new sources of royalty revenues. For those
remaining existing or potential sources of royalty revenue, our
licensees may be unable to maintain regulatory approvals for
currently licensed products or obtain regulatory approvals for new
products. Safety issues could also result in the failure to
maintain regulatory approvals or decrease revenues.
While we have substantially reduced our operating expenses in
anticipation of the decline in revenues – ceasing our research and
development activities, eliminating our workforce in favor of
independent contractors, and discontinuing our significant lease
commitments – we may incur unanticipated liabilities or expenses,
including expenses to defend unasserted product liability claims or
greater than expected liabilities for PegIntron. Any such expenses
or liabilities could impact the availability of assets that we
expect to use to fund future operations or adversely affect our
ability to pay dividends or make distributions to shareholders upon
a liquidation of the Company.
We have outsourced all corporate functions, which makes us more
dependent on third parties to perform these corporate
functions.
We have outsourced all corporate functions, which makes us more
dependent on third parties for the performance of these functions.
To the extent that we are unable to effectively reallocate employee
responsibilities, retain key officers as consultants, maintain
effective internal control over financial reporting and effective
disclosure controls and procedures, establish and maintain
agreements with competent third-party contractors on terms that are
acceptable to us, or effectively manage the work performed by any
retained third-party contractors, our ability to manage the
operations and planned liquidation of our business effectively
could be compromised.
Risks Relating to the Proposed Dissolution and
Liquidation
The proposed dissolution and liquidation of the Company may not
be completed in a timely manner or at all.
On February 4, 2016, our Board adopted a Plan of Liquidation and
Dissolution, pursuant to which we would, subject to obtaining
requisite stockholder approval, be liquidated and dissolved in
accordance with Sections 280 and 281(a) of the General Corporation
Law of the State of Delaware. In approving the Plan of Liquidation
and Dissolution, our Board had considered, among other factors, our
ability to obtain no-action relief from the SEC to suspend certain
of our reporting obligations under the Securities Exchange Act of
1934, as amended, and the anticipated cost savings if such relief
is granted by the SEC. After further consideration, our Board
determined that it would be fair, advisable and in the best
interests of the Company and its stockholders to postpone seeking
stockholder approval of the Plan of Liquidation and Dissolution
until a later time to be determined by our Board.
From time to time, our Board
reviews our status and prospects in deciding on the timing of our
dissolution and liquidation pursuant to the Plan of Liquidation and
Dissolution. If our Board determines to seek stockholder approval
of such plan and such plan is approved by our stockholders and
implemented by us, it is expected that our corporate existence will
continue for the purpose of winding up our business and affairs
for at least three years. We have forecasted minimal or no
royalty or milestone revenues for the foreseeable future. In light
of the uncertainty as to whether any of the milestones under the
Micromet Marketing Agreement would be achieved, this forecast
assumes that we would not receive any milestone or royalty payments
under the Micromet Marketing Agreement.
The amount we distribute to our stockholders as liquidating
distributions, if any, pursuant to the Plan of Liquidation and
Dissolution may be substantially less than estimated.
At present, we cannot determine with certainty the amount of any
liquidating distribution to our stockholders if the Plan of
Liquidation and Dissolution is implemented. The amount of cash
ultimately distributed to our stockholders in any liquidating
distribution pursuant to the Plan of Liquidation and Dissolution
depends on, among other things, the amount of our liabilities,
obligations and expenses and claims against us, and the amount of
the reserves that we establish during the liquidation process.
Estimates of these amounts may be inaccurate. Factors that could
impact these estimates include the following: (i) if any of the
estimates regarding the Plan of Liquidation and Dissolution,
including the expenses to satisfy outstanding obligations,
liabilities and claims during the liquidation process, are
inaccurate, (ii) if litigation is brought against us or our
directors and officers, if unforeseen claims are asserted against
us, we will have to defend or resolve such claims or establish a
reasonable reserve before making distributions to our stockholders,
(iii) if the estimates regarding the expenses to be incurred in the
liquidation process, including expenses of personnel required and
other operating expenses (including legal, accounting and other
professional fees) necessary to dissolve and liquidate the Company,
are inaccurate and (iv) if we continue to incur significant
expenses related to ongoing reporting obligations.
We may not realize our deferred income tax assets.
The ultimate realization of our deferred income tax assets is
dependent upon generating future taxable income, executing tax
planning strategies, and reversals of existing taxable temporary
differences. We have recorded a full valuation allowance against
our deferred income tax assets. The valuation allowance may
fluctuate as conditions change. Our ability to utilize net
operating loss (“NOL”) carryforwards to offset our future taxable
income and/or to recover previously paid taxes would be limited if
we were to undergo an “ownership change” within the meaning of
Section 382 of the Internal Revenue Code (the “IRC”). In general,
an “ownership change” occurs whenever the percentage of the stock
of a corporation owned by “5-percent shareholders” (within the
meaning of Section 382 of the IRC) increases by more than 50
percentage points over the lowest percentage of the stock of such
corporation owned by such “5-percent shareholders” at any time over
the testing period.
An ownership change under Section 382 of the IRC would establish an
annual limitation to the amount of NOL carryforwards we could
utilize to offset our taxable income in any single year. The
application of these limitations might prevent full utilization of
the deferred tax assets attributable to our NOL carryforwards.
There can be no assurance that we will not undergo an ownership
change within the meaning of Section 382. See Note 10 to
Consolidated Financial Statements, included in Item 8 in this
document.
Risks Relating to Our Common Stock
The price of our common stock has been volatile and may
decline significantly as we wind down our business
operations.
Historically, the market price of our common stock has fluctuated
over a wide range for a variety of reasons, including company
specific factors and global and industry-wide conditions and
events. In the future, the value of our common stock may be
impacted by our decision to discontinue research and development
activities, our declining royalty revenues, our ability to monetize
our remaining assets, including our NOLs, and any unexpected
liabilities or expenses that impact our continued operations or
ability to pay dividends or make distributions to our
shareholders.
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.
Our common stock is quoted on the OTCQX market of the OTC Markets
Group, Inc. and the quotation of our common stock on the OTCQX
market does not assure that a liquid trading market exists or will
develop. Stocks traded on the OTCQX market generally have very
limited trading volume and exhibit a wider spread between the
bid/ask quotations than stocks traded on national exchanges.
Moreover, a significant number of institutional investors have
investment policies that prohibit them from trading in stocks on
the OTCQX marketplace. As a result, investors may find it difficult
to dispose of, or to obtain accurate quotations of the price of,
our common stock. This significantly limits the liquidity of our
common stock and may adversely affect the market price of our
common stock.
We do not currently, and are not expected in the future to, meet
the listing standards of any national exchange. We presently
anticipate that our common stock will continue to be quoted on the
OTCQX market. As a result, investors must bear the economic risk of
holding their shares of our common stock for an indefinite period
of time. In the future, our common stock could become subject to
“penny stock” rules which impose additional disclosure requirements
on broker-dealers and could further negatively impact market
liquidity for our common stock and our stockholders’ ability to
sell their shares of our common stock.
The declaration of dividends is within the discretion of our
Board, subject to any applicable limitations under Delaware
corporate law. Our ability to pay dividends in the future depends
on, among other things, our declining royalty revenues and our
ability to manage expenses, including costs relating to our ongoing
operations.
In April 2013, we announced that our Board intends to distribute
excess cash, expected to arise from ongoing royalty revenues, in
the form of periodic dividends to our stockholders. The declaration
of dividends is within the discretion of our Board, subject to any
applicable limitations under Delaware corporate law, and,
therefore, our Board could decide in the future not to declare
dividends. In addition, our ability to pay dividends in the future
depends on, among other things, our future revenues from existing
and any future royalties and/or milestone payments and our ability
to manage expenses, including costs relating to our ongoing
operations. Our future revenues from existing royalties have
decreased sharply over the last several years and are expected to
decline and eventually cease altogether due to eventual expirations
over time of our right to receive royalties and milestones under
the terms of our existing licensing arrangements. Therefore, we
expect little or no future royalties from existing products for
which we have the right to receive royalties. There is no assurance
that we will have sufficient royalty or milestone revenues to be
able to pay dividends in the future. Moreover, if we file a Plan of
Liquidation and Dissolution, the applicable Delaware court may
impose limitations on our ability to declare dividends prior to the
final dissolution of the Company. Our inability to pay dividends
could cause the price of our common stock to decline
significantly.
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.
Provisions of our certificate of incorporation and bylaws, as well
as provisions of Delaware corporate law, could make it more
difficult for a third party to acquire us, even though such
acquisitions may be beneficial to our stockholders. These
anti-takeover provisions include:
| |
• |
lack
of a provision for cumulative voting in the election of
directors; |
| |
• |
the
ability of our board to authorize the issuance of “blank check”
preferred stock to increase the number of outstanding shares and
thwart a takeover attempt; |
| |
• |
advance
notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings; and |
| |
• |
limitations
on who may call a special meeting of stockholders. |
The provisions described above and provisions of Delaware corporate
law relating to business combinations with interested stockholders
may discourage, delay or prevent a third party from acquiring us.
These provisions may also discourage, delay or prevent a third
party from acquiring a large portion of our securities, or
initiating a tender offer, even if our stockholders might receive a
premium for their shares in the acquisition over the then current
market price.
Our previous Section 382 rights plan expired on April 30, 2017 and
has not been replaced.
Item 1B. Unresolved Staff
Comments
Not applicable.
Item 2. Properties
None.
Item 3. Legal Proceedings
From time to time, we are engaged in litigation arising in the
ordinary course of our business. There are currently no pending
material litigation to which we are a party or to which any of our
property is subject.
Item 4. Mine Safety
Disclosures
Not applicable.
PART II.
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Market Information
Since August 9, 2016, our common stock has been quoted for trading
on the OTCQX market of the OTC Markets Group, Inc. under the
trading symbol “ENZN.”
The following table sets forth, for the periods indicated, the high
and low sales prices for our common stock as reported on the OTC
Markets. This information reflects inter-dealer prices, without
retail mark-up, markdown or commission and may not represent actual
transactions.
|
Quarter Ended |
|
High |
|
|
Low |
|
|
December 31, 2019 |
|
$ |
0.30 |
|
|
$ |
0.17 |
|
|
September 30, 2019 |
|
$ |
0.31 |
|
|
$ |
0.23 |
|
|
June 30, 2019 |
|
$ |
0.27 |
|
|
$ |
0.22 |
|
|
March 31, 2019 |
|
$ |
0.29 |
|
|
$ |
0.19 |
|
|
December 31, 2018 |
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
September 30, 2018 |
|
$ |
0.28 |
|
|
$ |
0.24 |
|
|
June 30, 2018 |
|
$ |
0.28 |
|
|
$ |
0.26 |
|
|
March 31, 2018 |
|
$ |
0.30 |
|
|
$ |
0.21 |
|
Holders
As of February 7, 2020, there were 806 holders of record of our
common stock, which does not reflect persons or entities that hold
the common stock in nominee or “street” name through various
brokerage
Dividends
In
April 2013, we announced that our Board intends to distribute
excess cash, expected to arise from ongoing royalty revenues, in
the form of periodic dividends to our stockholders. The declaration
of dividends is within the discretion of our Board, subject to any
applicable limitations under Delaware corporate law, and therefore
our Board could decide in the future not to declare dividends. In
addition, our ability to pay dividends in the future depends on,
among other things, our future revenues from existing royalties
and/or milestone payments and our ability to manage expenses,
including costs relating to our ongoing operations.
Repurchase of Equity Securities
Not applicable.
Item 6. Selected Financial
Data
As a smaller reporting company, we are not required to provide the
information required by this item.
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
The following discussion of our financial condition and results of
operations should be read together with our consolidated financial
statements and notes to those statements included elsewhere in this
Annual Report on Form 10-K.
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. 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
Prior to 2017, the primary source of our royalty revenues was
derived from sales of PegIntron, which is marketed by
Merck & Co., Inc. (“Merck”). We currently have no clinical
operations and limited corporate operations. We have no intention of resuming any
clinical development activities or acquiring new sources of royalty
revenues. Royalty revenues from sales of PegIntron accounted for
55% and (2)% of our total revenues for the years ended December 31,
2019 and 2018, respectively, net of the effects of Merck’s
adjustments for recoupment of previously overpaid royalties.
At December 31, 2018, according to Merck, we had a liability to
Merck of approximately $439,000 based, primarily, on Merck’s
assertions regarding recoupments related to prior returns and
rebates. In the first quarter of 2019, net royalties from PegIntron
were negative $51,000 due to returns and rebates exceeding the
amount of royalties earned. In the second, third and fourth
quarters of 2019, net royalty revenues from sales of PegIntron were
$142,000, $2,000 and $22,000, respectively. As such, as asserted by
Merck, the Company’s liability to Merck was $324,000 at December
31, 2019, as discussed in Note 4 to the Consolidated Financial
Statements.
During the second quarter of 2019, we received a one-time,
non-refundable, payment of approximately $66,000 from Novartis
Pharma AG in payment of a worldwide, royalty free non-exclusive
license to certain Canadian patents.
During the fourth quarter of 2019, we received a license
maintenance fee of approximately $27,000 from Amgen, Inc. in
payment of a worldwide, royalty-free non-exclusive right to license
Viventia. The fee represents half of the amount paid by
Viventia on an annual basis for the continued right to license
Viventia.
In April 2013, we announced that we intended to distribute excess
cash, expected to arise from royalty and milestone revenues, in the
form of periodic dividends to stockholders. In 2019, we distributed
to our shareholders cash dividends in the aggregate amount of
approximately $8.0 million. (See Note 6 to our Consolidated
Financial Statements.)
On February 4, 2016, our Board adopted a Plan of Liquidation and
Dissolution (the “Plan of Liquidation and Dissolution”), the
implementation of which has been postponed. (See Note 14 to our
Consolidated Financial Statements.)
In 2018, the primary source of our royalty revenues was
related to a
milestone payment of $7.0 million due from Servier.
On January 30, 2019, we
entered into a letter agreement with Servier, in connection with
the Asset Purchase Agreement, by and between Klee Pharmaceuticals,
Inc., Defiante and Sigma-Tau, on the one hand, and the Company, on
the other hand. Under the letter agreement, Servier, as
successor-in-interest to Defiante, confirmed its obligation to pay
us a $7.0 million milestone payment related to SC Oncaspar as a
result of the FDA’s December 20, 2018 approval of calaspargase
pegol – mknl (brand name ASPARLAS™) as a component of a multi-agent
chemotherapeutic regimen for the treatment of acute lymphoblastic
leukemia in pediatric and young adult patients age 1 month to 21
years. In addition, under the letter agreement, we agreed to waive
Servier’s obligations to pursue the development of SC Oncaspar in
Europe and the approval of SC Oncaspar by the EMEA under the Asset
Purchase Agreement, provided that we are not waiving Servier’s
obligation to make any applicable milestone payment to us upon EMEA
approval, if any, of SC Oncaspar. Servier was required to make the
$7.0 million milestone payment to us within three business days
following the parties’ completion of procedures for claiming
benefits under the double tax treaty between the United States and
the United Kingdom. We recorded the $7.0 million milestone revenue
in 2018 and a current milestone receivable at December 31, 2018.
The $7.0 million payment was received in July 2019.
We may
be entitled to certain potential future milestone payments
contingent upon the achievement of certain regulatory
approval-related milestones by third-party licensees. There can be
no assurance that we will receive any milestone payments resulting
from our agreements with any of our third-party licensees.
We will not recognize revenue from any
of our third-party licensees until all revenue recognition
requirements are met.
Commencing on March 1, 2016, we changed the location of our
principal executive offices to 20 Commerce Drive, Suite 135,
Cranford, New Jersey, 07016. We entered into an office service
agreement with Regus for use of office space at this location
effective March 1, 2016. Under the agreement, in exchange for our
right to use the office space at this location, we were required to
pay Regus an initial service retainer of $2,418 and thereafter pay
Regus a monthly fee of $1,209 until February 28, 2017. This
agreement was renewed for two one-year extensions, until February
28, 2019, for a monthly fee of $1,259. In June 2018, we and Regus
agreed to end the lease on August 31, 2018, and replace it with an
updated office service agreement. We entered into an office service
agreement with Regus for mailbox, plus telephone answering and
virtual office services effective September 1, 2018. Under the
agreement, in exchange for the services provided by Regus, we were
required to pay Regus a monthly fee of $259 until August 31,
2020.
Effective July 1, 2018, we entered into an office rental agreement
with Equinox for use of office space at 3556 Main Street,
Manchester, VT, 05225. Under this agreement, in exchange for our
right to use the office space at this location, we are required to
pay Equinox a monthly fee of $729 until June 30, 2020.
Plan of Dissolution
On February 4, 2016, our Board adopted a Plan of Liquidation and
Dissolution, pursuant to which we would, subject to obtaining
requisite stockholder approval, be liquidated and dissolved in
accordance with Sections 280 and 281(a) of the General Corporation
Law of the State of Delaware. In approving the Plan of Liquidation
and Dissolution, our Board had considered, among other factors, our
ability to obtain no-action relief from the Securities and Exchange
Commission (the “SEC”) to suspend certain of our reporting
obligations under the Securities Exchange Act of 1934, as amended,
and the anticipated cost savings if such relief is granted by the
SEC. Upon further review, our Board determined that it would be
fair, advisable and in the best interests of the Company and its
stockholders to postpone seeking stockholder approval of the Plan
of Liquidation and Dissolution until a later time to be determined
by our Board.
From time to time, our Board
reviews our status and prospects in deciding on the timing of our
dissolution and liquidation pursuant to the Plan of Liquidation and
Dissolution. If our Board determines to seek stockholder
approval of such plan and such plan is approved by our stockholders
and implemented by us, it is expected that our corporate existence
will continue for the purpose of winding up our business and
affairs for at least three years. We have forecasted minimal
or no royalty or milestone revenues for the foreseeable future. In
light of the uncertainty as to whether any of the milestones under
the Micromet Marketing Agreement would be achieved, this forecast
assumes that we would not receive any milestone or royalty payments
under the Micromet Marketing Agreement.
Results
of Operations (in millions of dollars):
| |
|
For the Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| Revenues: |
|
|
|
|
|
|
|
|
|
Royalties and milestones, net |
|
$ |
0.2 |
|
|
$ |
6.9 |
|
|
Total revenues |
|
|
0.2 |
|
|
|
6.9 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1.2 |
|
|
|
1.1 |
|
|
Operating (loss) income |
|
|
(1.0 |
) |
|
|
5.8 |
|
|
Income tax expense |
|
|
- |
|
|
|
- |
|
|
Net (loss) income |
|
$ |
(1.0 |
) |
|
$ |
5.8 |
|
Overview
The following table summarizes our royalties earned in 2019 and
2018:
Royalties and
Milestones Revenues (in millions of dollars):
| |
|
For the Year Ended December 31, |
|
| |
|
|
|
|
% |
|
|
|
|
| |
|
2019 |
|
|
Change |
|
|
2018 |
|
|
Royalties and milestones revenues |
|
|
0.2 |
|
|
|
(96 |
) |
|
|
7.2 |
|
|
Less: Adjustment by Merck for returns and rebates |
|
|
- |
|
|
|
100 |
|
|
|
(0.3 |
) |
| |
|
$ |
0.2 |
|
|
|
(97 |
) |
|
$ |
6.9 |
|
Until 2017, in recent years, our royalty revenues had been derived,
primarily, from sales of PegIntron. In 2019 and 2018, we
earned total net royalties and milestone revenues of approximately
$0.2 million and $6.9 million, respectively. The revenues in 2019
were primarily from royalty revenues from Merck related to sales of
PegIntron. The revenues in 2018 resulted from $7.0 million earned
pursuant to a milestone reached by Servier. Royalty revenues from
sales of PegIntron accounted for approximately 55% and (2)% of our
total royalty revenues in 2019 and 2018, respectively. Our right to
receive royalties on U.S. and European sales of PegIntron expired
in 2016 and 2018, respectively, and will expire in Malaysia in
2020, Japan in 2021 and Chile in 2024.
At December 31, 2018, according to Merck, we had a liability to
Merck of approximately $439,000 based, primarily, on Merck’s
assertions regarding recoupments related to prior returns and
rebates. In the first quarter of 2019, net royalties from PegIntron
were negative $51,000 due to returns and rebates exceeding the
amount of royalties earned. In the second, third, and fourth
quarters of 2019, net royalty revenues from sales of PegIntron were
$142,000, $2,000 and $22,000, respectively. As such, as asserted by
Merck, the Company’s liability to Merck was $324,000 at December
31, 2019, as discussed in Note 4 to the Consolidated Financial
Statements.
Net
royalty revenues in 2018 were a negative $82,000 due primarily to
Merck’s calculation of returns and rebates exceeding the
amount of royalties earned throughout the year. In 2019, net
royalty revenues were approximately $114,000. All such royalty
revenues for 2019 and 2018 were related to net sales of PegIntron.
We believe that we will receive little or no additional royalties
from Merck and may incur additional chargebacks from returns and
rebates in amounts that, based on current estimates, are not
believed to be material. As reported by Merck, in recent years,
sales declines were driven by lower volumes in nearly all regions,
as the availability of new therapeutic options resulted in
continued loss of market share.
Our rights to receive royalties from sales of PegIntron expired in
the U.S. in 2016, expired in Europe in 2018 and will expire in
Malaysia in 2020, Japan in 2021 and Chile in 2024.
General
and Administrative Expenses (in millions of
dollars):
| |
|
For the Year Ended December 31, |
|
| |
|
|
|
|
% |
|
|
|
|
| |
|
2019 |
|
|
Change |
|
|
2018 |
|
|
General and administrative expenses |
|
$ |
1.2 |
|
|
|
9 |
|
|
$ |
1.1 |
|
For the year ended December 31, 2019, general and administrative
expenses were $1.2 million, up approximately $100,000 (9%) from
$1.1 million in the prior year. The change in 2019 from 2018 was
primarily from an increase in accounting, consulting, and
contracted services that were substantially attributable to a study
of potential revenues from Sesen, as partially offset by a decrease
in legal fees and insurance expenses.
In 2019 and 2018, general and administrative expenses consist
primarily of consulting fees for executive services, outside
professional services for accounting, audit, tax, legal, financing
activities and patent filing fees.
Income Taxes
As a result of royalty and milestone income for the year ended
December 31, 2019, we generated approximately $977,000 in taxable
loss before utilization of net operating loss carryforwards. We
utilized none of our net operating loss carryforwards due to the
taxable loss position. Due to the valuation allowance placed on our
deferred tax assets, the deferred tax expense resulting from the
usage and/or expiration of deferred tax assets was offset by a
corresponding deferred tax benefit from a reduction in valuation
allowance, and we recorded no deferred tax expense during the year
ended December 31, 2019. We are projecting future tax losses and
have recorded a full valuation allowance against our remaining
deferred tax assets as of December 31, 2019, as we believe it is
more likely than not that these assets will not be realized.
These projections and beliefs are based upon a variety of estimates
and numerous assumptions made by our management with respect to,
among other things, forecasted sales of the drug products for which
we have the right to receive royalties and other matters, many of
which are difficult to predict, are subject to significant
uncertainties and are beyond our control. As a result, there can be
no assurance that the estimates and assumptions upon which these
projections and beliefs are based will prove accurate, that the
projected results will be realized or that the actual results will
not be substantially higher or lower than projected.
Liquidity and Capital Resources
Our current sources of liquidity are (i) our existing cash on hand
and (ii) anticipated tax refunds. While we no longer have any
research and development activities, we continue to retain rights
to receive royalties and milestone payments from existing licensing
arrangements with other companies. We believe that our existing
cash on hand and anticipated tax refunds will be sufficient to fund
our operations, at least, through February 24, 2021. However, our
future royalty revenues are expected to be minimal over the next
several years.
Cash provided by operating activities represents 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 2019 was $6.9 million, as compared to cash used
in operating activities of $1.0 million in 2018. The increase was
due, primarily, to the collection of the $7.0 million milestone
receivable (due from Servier) in July 2019 and collection of
refundable tax credits of approximately $1.0 million, and partially
offset by net loss of approximately $1.0 million and a decrease in
accounts payable of approximately $0.1 million.
Cash used in financing activities was approximately $8.0 million in
2019, attributable entirely to payments of dividends on our common
stock in March and October 2019. There was no cash used in or
provided by financing activities in 2018.
The net effect of the foregoing was a decrease of cash of
approximately $1.1 million, from $6.5 million at December 31, 2018
to $5.4 million at December 31, 2019.
Off-Balance Sheet Arrangements
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, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually
narrow limited purposes. As of December 31, 2019, we were not
involved in any off-balance sheet special purpose entity
transactions.
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 U.S.
(“U.S. GAAP”). All applicable U.S. GAAP accounting standards
effective as of December 31, 2019 have been taken into
consideration in preparing the consolidated financial statements.
The preparation of the consolidated financial statements requires
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures.
Some of those estimates are subjective and complex, and,
consequently, actual results could differ from those estimates. The
following accounting policies and estimates have been highlighted
as significant because changes to certain judgments and assumptions
inherent in these policies could affect our consolidated financial
statements.
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 income when the milestone has been achieved and collection is
assured, such payments are non-refundable and no further effort is
required on our part or the other party to complete the earning
process.
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 December 31, 2019, we believe, based on our
projections, that it is more likely than not that our net deferred
tax assets, including our net operating losses from operating
activities, will not be realized. We recognize the benefit of an
uncertain tax position that we have taken or expect to take on the
income tax returns we file if it is more likely than not that we
will be able to sustain our position.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the
information required by this item.
Item 8. Financial Statements and
Supplementary Data
Financial statements and notes thereto appear on pages F-1 to
F-17 of this Annual
Report on Form 10-K.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and
Procedures
| (a) |
Evaluation
of Disclosure Controls and Procedures |
Our management, under the direction of our Principal Executive
Officer and Principal Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), as of December 31, 2019.
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms
and that such information is accumulated and communicated to
management, including the Principal Executive Officer and Principal
Financial Officer, to allow timely decisions regarding required
disclosures. Based on that evaluation, our Principal Executive
Officer and Principal Financial Officer concluded that our
disclosure controls and procedures were effective as of December
31, 2019.
| (b) |
Changes
in Internal Control Over Financial Reporting |
There were no changes in our internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during the quarter ended December 31, 2019
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
| (c) |
Management’s
Report on Internal Control over Financial Reporting |
It is the responsibility of the management of Enzon
Pharmaceuticals, Inc. and Subsidiaries to establish and maintain
effective internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act). Internal control over
financial reporting is a process designed by, or under the
supervision of our Principal Executive Officer and Principal
Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of Enzon; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of Enzon are being made only in accordance with
authorizations of management and directors of Enzon; and (iii)
provide reasonable assurance regarding the prevention or timely
detection of unauthorized acquisition, use or disposition of
Enzon’s assets that could have a material effect on the
consolidated financial statements of Enzon.
Under the supervision and with the participation of our management,
we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on criteria established in
“Internal Control—Integrated Framework - 2013” issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Our management concluded that as of December 31, 2019 our
internal control over financial reporting was effective based on
those criteria.
| (d) |
Limitations
on the Effectiveness of Controls |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
| /s/
Andrew Rackear |
|
/s/
Richard L. Feinstein |
| Andrew
Rackear |
|
Richard
L. Feinstein |
| Chief
Executive Officer and Secretary |
|
Vice
President-Finance and Chief Financial Officer |
| (Principal
Executive Officer) |
|
(Principal
Financial Officer) |
| |
|
|
| February
19, 2020 |
|
February
19, 2020 |
Item 9B. Other
Information
None.
PART III.
Item 10. Directors, Executive
Officers and Corporate Governance
If we file a definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders with the SEC not later than 120 days after
December 31, 2019, the information required by this Item 10 is
incorporated herein by reference to such definitive proxy
statement. However, if such definitive proxy statement is not filed
with the SEC in such 120-day period, we will file an amendment to
this Annual Report on Form 10-K with the SEC not later than 120
days after December 31, 2019 to include the information required by
this Item 10.
Item 11. Executive
Compensation
If we file a definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders with the SEC not later than 120 days after
December 31, 2019, the information required by this Item 11 is
incorporated herein by reference to such definitive proxy
statement. However, if such definitive proxy statement is not filed
with the SEC in such 120-day period, we will file an amendment to
this Annual Report on Form 10-K with the SEC not later than 120
days after December 31, 2019 to include the information required by
this Item 11.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
If we file a definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders with the SEC not later than 120 days after
December 31, 2019, the information required by this Item 12 is
incorporated herein by reference to such definitive proxy
statement. However, if such definitive proxy statement is not filed
with the SEC in such 120-day period, we will file an amendment to
this Annual Report on Form 10-K with the SEC not later than 120
days after December 31, 2019 to include the information required by
this Item 12.
Item 13. Certain Relationships
and Related Transactions, and Director Independence
If we file a definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders with the SEC not later than 120 days after
December 31, 2019, the information required by this Item 13 is
incorporated herein by reference to such definitive proxy
statement. However, if such definitive proxy statement is not filed
with the SEC in such 120-day period, we will file an amendment to
this Annual Report on Form 10-K with the SEC not later than 120
days after December 31, 2019 to include the information required by
this Item 13.
Item 14. Principal Accounting
Fees and Services
If we file a definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders with the SEC not later than 120 days after
December 31, 2019, the information required by this Item 14 is
incorporated herein by reference to such definitive proxy
statement. However, if such definitive proxy statement is not filed
with the SEC in such 120-day period, we will file an amendment to
this Annual Report on Form 10-K with the SEC not later than 120
days after December 31, 2019 to include the information required by
this Item 14.
PART IV
Item 15. Exhibits, Financial
Statement Schedules
(a)(1), (a)(2) and (c). The response to this portion of Item 15 is
submitted as a separate section of this report commencing on page
F-1.
(a)(3) and (b). Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
|
Exhibit |
|
|
|
Reference |
|
Number |
|
Description |
|
No. |
| 2.1 |
|
Asset
Purchase Agreement, dated as of November 9, 2009, by and between
Klee Pharmaceuticals, Inc., Defiante Farmacêutica, S.A. and
Sigma-Tau Finanziaria S.p.A., on the one hand, and Enzon
Pharmaceuticals, Inc., on the other hand |
|
(9) |
| 2.2 |
|
Plan
of Liquidation and Dissolution of Enzon Pharmaceuticals, Inc.
(adopted by the Board of Directors of Enzon Pharmaceuticals, Inc.
on February 4, 2016) |
|
(17) |
| 3.1 |
|
Amended
and Restated Certificate of Incorporation dated May 18, 2006,
together with that Certificate of Amendment to the Amended and
Restated Certificate of Incorporation dated July 13,
2010 |
|
(1) |
| 3.2 |
|
Second
Amended and Restated By-Laws effective March 11, 2011, as amended
by Amendment No. 1 to the Second Amended and Restated By-Laws
effective February 15, 2013 |
|
(11) |
| 3.3 |
|
Certificate
of Designation of Series A Junior Participating Preferred Stock of
Enzon Pharmaceuticals, Inc. filed with the Secretary of the State
of Delaware on May 1, 2014 |
|
(15) |
| 4.1 |
|
Description
of Registrant’s Securities |
|
+ |
| 10.1 |
|
2001
Incentive Stock Plan, as amended and restated, of Enzon
Pharmaceuticals, Inc.** |
|
(2) |
| 10.2 |
|
Development,
License and Supply Agreement between Enzon, Inc. (now known as
Enzon Pharmaceuticals, Inc.) and Schering Corporation; dated
November 14, 1990, as amended* |
|
(3) |
| 10.3 |
|
Amended
and Restated 2013 Outside Director Compensation
Plan** |
|
(12) |
| 10.4 |
|
Form
of Non-Qualified Stock Option Agreement for Executive Officers
under the 2001 Incentive Stock Plan** |
|
(5) |
| 10.5 |
|
Form
of Restricted Stock Award Agreement for Executive Officers under
the 2001 Incentive Stock Plan** |
|
(5) |
| 10.6 |
|
Form
of Restricted Stock Unit Award Agreement for Executive Officers
under the 2001 Incentive Stock Plan** |
|
(6) |
| 10.7 |
|
Form
of Restricted Stock Unit Award Agreement for Independent Directors
under the 2001 Incentive Stock Plan** |
|
(4) |
| 10.8 |
|
Form
of Stock Option Award Agreement for Independent Directors under the
1987 Non-Qualified Stock Option Plan** |
|
(4) |
| 10.9 |
|
Form
of Stock Option Award Agreement for Independent Directors under the
2001 Incentive Stock Plan** |
|
(4) |
| 10.10 |
|
Amendment
to Outstanding Awards Under 2001 Incentive Stock
Plan** |
|
(8) |
| 10.11 |
|
2001
Incentive Stock Plan Non-Qualified Stock Plan Terms and
Conditions** |
|
(8) |
| 10.12 |
|
2001
Incentive Stock Plan Restricted Stock Unit Award Terms and
Conditions** |
|
(8) |
| 10.13 |
|
2001
Incentive Stock Plan Restricted Stock Award Terms and
Conditions** |
|
(8) |
| 10.14 |
|
2011
Stock Option and Incentive Plan** |
|
(10) |
| 10.15 |
|
Form
of Non-Qualified Stock Option Agreement for Company Employees under
the 2011 Stock Option and Incentive Plan** |
|
(10) |
| 10.16 |
|
Form
of Non-Qualified Stock Option Agreement for Non-Employee Directors
under the 2011 Stock Option and Incentive Plan** |
|
(10) |
| 10.17 |
|
Form
of Restricted Stock Unit Award Agreement for Company Employees
under the 2011 Stock Option and Incentive Plan** |
|
(10) |
| 10.18 |
|
Form
of Restricted Stock Unit Award Agreement for Non-Employee Directors
under the 2011 Stock Option and Incentive Plan** |
|
(10) |
| 10.19 |
|
2007
Employee Stock Purchase Plan |
|
(7) |
| 10.20 |
|
Independent
Contractor Agreement, dated as of December 13, 2013, between Enzon
Pharmaceuticals, Inc. and Richard L. Feinstein** |
|
(14) |
| 10.21 |
|
Assignment,
Assumption and Release Agreement, dated as of September 11, 2015,
between Kingsbridge 2005, LLC and Enzon Pharmaceuticals,
Inc. |
|
(16) |
| 10.22 |
|
Amendment
1 to Independent Contractor Agreement, effective as of December 28,
2015, between Enzon Pharmaceuticals, Inc. and Richard L.
Feinstein** |
|
(18) |
|
10.23 |
|
Agreement,
dated as of December 29, 2015, among Kingsbridge 2005, LLC,
Enzon Pharmaceuticals, Inc. and Axcellerate Pharma, LLC
(executed by Enzon Pharmaceuticals, Inc. on February 4,
2016) |
|
(18) |
|
10.24 |
|
Letter
Agreement, dated February 4, 2016, between Kingsbridge 2005, LLC
and Enzon Pharmaceuticals, Inc. |
|
(18) |
| 10.25 |
|
Separation
Agreement, dated as of September 27, 2013, between Enzon
Pharmaceuticals, Inc. and Andrew Rackear** |
|
(13) |
| 10.26 |
|
Amendment
to Separation Agreement, dated as of January 1, 2016, between Enzon
Pharmaceuticals, Inc. and Andrew Rackear** |
|
(19) |
| 10.27 |
|
Amendment
2 to Separation Agreement, dated as of March 31, 2016, between
Enzon Pharmaceuticals, Inc. and Andrew Rackear** |
|
(19) |
| 10.28 |
|
Amended
and Restated Exclusive IP Marketing Agreement, dated as of June 28,
2004, by and between Microment AG and Enzon Pharmaceuticals,
Inc. |
|
(20) |
| 10.29 |
|
Letter
Agreement, dated January 30, 2019, between Servier IP UK Limited
and Enzon Pharmaceuticals, Inc. |
|
(20) |
| 21.1 |
|
Subsidiaries
of Registrant |
|
+ |
| 23.1 |
|
Consent
of EisnerAmper LLP |
|
+ |
| 31.1 |
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
+ |
| 31.2 |
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
+ |
| 32.1 |
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*** |
|
+ |
| 32.2 |
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*** |
|
+ |
| 101 |
|
The
following materials from Enzon Pharmaceuticals, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2019, formatted
in XBRL (Extensible Business Reporting Language): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Income, (iii)
Consolidated Statements of Stockholders’ Equity, (iv) Consolidated
Statements of Cash Flow, and (v) Notes to Consolidated Financial
Statements. |
|
+ |
| + |
|
Filed
herewith |
| |
|
|
| * |
|
Portions
of this exhibit have been redacted and filed separately with the
Commission pursuant to a confidential treatment
request. |
| |
|
|
| ** |
|
Management
contracts or compensatory plans and arrangements required to be
filed pursuant to Item 601(b)(10)(ii)(A) or (iii) of Regulation
S-K. |
| |
|
|
| *** |
|
These
certifications are not deemed filed by the Commission and are not
to be incorporated by reference in any filing the Company makes
under the Securities Act of 1933 or the Securities Exchange Act of
1934, irrespective of any general incorporation language in any
filings. |
Referenced exhibit was previously filed with the Commission as an
exhibit to the Company’s filing indicated below and is incorporated
herein by reference to that filing:
| (1) |
Quarterly
Report on Form 10-Q for the quarter ended June 30, 2010 filed
August 9, 2010 |
| (2) |
Current
Report on Form 8-K filed May 19, 2006 |
| (3) |
Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 filed
on September 26, 2002 |
| (4) |
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2005 filed
November 9, 2005 |
| (5) |
Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004 filed
February 9, 2005 |
| (6) |
Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005 filed May
10, 2005 |
| (7) |
Registration
Statement on Form S-8 (File No. 333-140282) filed January 29,
2007 |
| (8) |
Annual
Report on Form 10-K for the year ended December 31, 2008 filed
March 9, 2009 |
| (9) |
Current
Report on Form 8-K filed November 12, 2009 |
| (10) |
Registration
Statement on Form S-8 (File No. 333-174099) filed May 10,
2011 |
| (11) |
Annual
Report on Form 10-K for the year ended December 31, 2012 filed
March 18, 2013 |
| (12) |
Quarterly
Report on Form 10-Q for the quarter ended June 30, 2013 filed
August 6, 2013 |
| (13) |
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2013 filed
November 12, 2013 |
| (14) |
Annual
Report on Form 10-K for the year ended December 31, 2014 filed
March 14, 2014 |
| (15) |
Current
Report on Form 8-K filed May 1, 2014 |
| (16) |
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2015 filed
November 6, 2015 |
| (17) |
Current
Report on Form 8-K filed February 9, 2016 |
| (18) |
Annual
Report on Form 10-K for the fiscal year ended December 31, 2015
filed March 21, 2016 |
| (19) |
Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016 filed May
9, 2016 |
| (20) |
Annual Report on Form 10-K for the
fiscal year ended December 31, 2018 filed on February 21, 2019 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
ENZON PHARMACEUTICALS, INC. |
| |
(Registrant) |
| |
|
| Dated:
February 19, 2020 |
/s/
Andrew Rackear |
| |
Andrew
Rackear |
| |
Chief
Executive Officer and Secretary |
| |
(Principal
Executive Officer) |
| |
|
| Dated:
February 19, 2020 |
/s/
Richard L. Feinstein |
| |
Richard
L. Feinstein |
| |
Vice
President-Finance and Chief Financial Officer |
| |
(Principal
Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Name |
|
Title |
|
Date |
| |
|
|
|
|
| /s/
Andrew Rackear |
|
Chief
Executive Officer and Secretary |
|
February
19, 2020 |
| Andrew
Rackear |
|
(Principal
Executive Officer) |
|
|
| |
|
|
|
|
| /s/
Richard L. Feinstein |
|
Vice
President - Finance and Chief Financial Officer |
|
February
19, 2020 |
| Richard
L. Feinstein |
|
(Principal
Financial Officer and Principal Accounting Officer) |
|
|
| |
|
|
|
|
| /s/
Jonathan Christodoro |
|
Chairman
of the Board |
|
February
19, 2020 |
| Jonathan
Christodoro |
|
|
|
|
| |
|
|
|
|
| /s/
Odysseas Kostas |
|
Director |
|
February
19, 2020 |
| Odysseas
Kostas |
|
|
|
|
| |
|
|
|
|
| /s/
Jennifer McNealey |
|
Director |
|
February
19, 2020 |
| Jennifer
McNealey |
|
|
|
|
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Index
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Enzon Pharmaceuticals, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Enzon Pharmaceuticals, Inc. and Subsidiaries (the “Company”) as of
December 31, 2019 and 2018, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the
years then ended, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the
consolidated financial position of the Company as of December 31,
2019 and 2018, and the consolidated results of their operations and
their cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States
of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
|
/s/ EisnerAmper LLP
|
|
| |
|
| We have served as the Company’s auditor since
2013. |
|
| |
|
| EISNERAMPER LLP |
|
| Philadelphia, Pennsylvania |
|
| February 19, 2020 |
|
ENZON PHARMACEUTICALS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| |
|
December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
5,446 |
|
|
$ |
6,500 |
|
|
Milestone receivable |
|
|
- |
|
|
|
7,000 |
|
|
Refundable tax credits receivable, current portion |
|
|
485 |
|
|
|
970 |
|
|
Other current assets |
|
|
62 |
|
|
|
70 |
|
|
Total current assets |
|
|
5,993 |
|
|
|
14,540 |
|
|
Refundable tax credits receivable, net of current portion |
|
|
485 |
|
|
|
970 |
|
| |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,478 |
|
|
$ |
15,510 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
324 |
|
|
$ |
439 |
|
|
Accrued expenses and other current liabilities |
|
|
99 |
|
|
|
78 |
|
|
Total current liabilities |
|
|
423 |
|
|
|
517 |
|
| |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock - $0.01 par value, authorized 3,000,000 shares; no
shares issued and outstanding at December 31, 2019 and 2018 |
|
|
- |
|
|
|
- |
|
|
Common stock - $0.01 par value, authorized 170,000,000 shares;
issued and outstanding 44,214,603 shares at December 31, 2019 and
2018 |
|
|
442 |
|
|
|
442 |
|
|
Additional paid-in capital |
|
|
75,690 |
|
|
|
83,649 |
|
|
Accumulated deficit |
|
|
(70,077 |
) |
|
|
(69,098 |
) |
|
Total stockholders’ equity |
|
|
6,055 |
|
|
|
14,993 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
6,478 |
|
|
$ |
15,510 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
ENZON PHARMACEUTICALS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| Revenues: |
|
|
|
|
|
|
|
Royalties and milestones, net |
|
$ |
207 |
|
|
$ |
6,918 |
|
|
Total revenues |
|
|
207 |
|
|
|
6,918 |
|
| |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,180 |
|
|
|
1,063 |
|
|
Total operating expenses |
|
|
1,180 |
|
|
|
1,063 |
|
| |
|
|
|
|
|
|
|
|
|
Operating (loss) income and (loss) income before income tax
expense |
|
|
(973 |
) |
|
|
5,855 |
|
| |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
6 |
|
|
|
6 |
|
| |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(979 |
) |
|
$ |
5,849 |
|
| |
|
|
|
|
|
|
|
|
| (Loss)
earnings per common share |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
0.13 |
|
| Weighted
average number of shares |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
44,215 |
|
|
|
44,215 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
ENZON PHARMACEUTICALS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Par |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
Balance, December 31, 2017 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
83,649 |
|
|
$ |
(74,947 |
) |
|
$ |
9,144 |
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,849 |
|
|
|
5,849 |
|
| Balance,
December 31, 2018 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
83,649 |
|
|
$ |
(69,098 |
) |
|
$ |
14,993 |
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(979 |
) |
|
|
(979 |
) |
|
Common stock dividend |
|
|
- |
|
|
|
- |
|
|
|
(7,959 |
) |
|
|
- |
|
|
|
(7,959 |
) |
|
Balance, December 31, 2019 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
75,690 |
|
|
$ |
(70,077 |
) |
|
$ |
6,055 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
ENZON PHARMACEUTICALS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(979 |
) |
|
$ |
5,849 |
|
|
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Decrease (increase) in milestone receivable |
|
|
7,000 |
|
|
|
(7,000 |
) |
|
Decrease in other current assets |
|
|
8 |
|
|
|
24 |
|
|
Decrease in refundable tax credit receivable |
|
|
970 |
|
|
|
- |
|
|
(Decrease) increase in accounts payable |
|
|
(115 |
) |
|
|
214 |
|
|
Increase (decrease) in accrued expenses and other current
liabilities |
|
|
21 |
|
|
|
(65 |
) |
|
Net cash provided by (used in) operating activities |
|
|
6,905 |
|
|
|
(978 |
) |
| |
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
(7,959 |
) |
|
|
- |
|
|
Net cash used in financing activities |
|
|
(7,959 |
) |
|
|
- |
|
| Net
decrease in cash |
|
|
(1,054 |
) |
|
|
(978 |
) |
|
Cash at beginning of year |
|
|
6,500 |
|
|
|
7,478 |
|
|
Cash at end of year |
|
$ |
5,446 |
|
|
$ |
6,500 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
ENZON PHARMACEUTICALS, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (1) |
Description
of Business |
Enzon Pharmaceuticals, Inc. (together with its subsidiaries, the
“Company,” “Enzon,” “we” or “us”), manages its sources of royalty
revenues from existing licensing arrangements with other companies
primarily related to sales of certain drug products that utilize
our proprietary technology. In 2019, the primary source of the
Company’s revenue was royalties. In 2018, the primary source of the
Company’s royalties and milestones revenues was a milestone payment of $7
million due from Servier IP UK Limited (“Servier”). On December
20, 2018, the Company was notified that the U.S. Food and Drug
Administration (the “FDA”) approved Servier’s Biologics License Application (“BLA”) for
calaspargase pegol – mknl
(brand name ASPARLAS™), also known as SC Oncaspar. Pursuant
to an agreement originally entered into with Sigma-Tau
Finanziaria S.p.A. (“Sigma-Tau”) in November 2009, and ultimately
assigned to Servier, the Company earned a milestone payment of $7.0
million. Accordingly, the
Company recorded revenue and a milestone receivable of $7.0 million
at December 31, 2018.
Prior to 2017, the Company’s primary source of royalty revenues was
derived from sales of PegIntron, which is marketed by
Merck & Co., Inc. (“Merck”). The Company currently has no
clinical operations and limited corporate operations. The Company
has no intention of resuming any clinical development activities or
acquiring new sources of royalty revenues. At December 31, 2018,
according to Merck, the Company had a liability to Merck of
approximately $439,000 based, primarily, on Merck’s assertions
regarding recoupments related to prior returns and rebates. In the
first quarter of 2019, net royalties from PegIntron were negative
$51,000 due to returns and rebates exceeding the amount of
royalties earned. In the second, third and fourth quarters of 2019,
net royalty revenues from sales of PegIntron were $142,000, $2,000
and $22,000, respectively. As such, as asserted by Merck, the
Company’s liability to Merck was $324,000 at December 31, 2019, as
discussed in Note 4 to the Consolidated Financial Statements. The
Company believes that it will receive no more royalties from Merck,
but may be charged with additional chargebacks from returns and
rebates in amounts that, based on current estimates, are not
expected to be material.
In April 2013, we announced that we intended to distribute excess
cash, expected to arise from royalty and milestone revenues, in the
form of periodic dividends to stockholders. See Note 6.
On February 4, 2016, the Company’s Board of Directors (the “Board”)
adopted a Plan of Liquidation and Dissolution (the “Plan of
Liquidation and Dissolution”), the implementation of which has been
postponed. See Note 14.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 30, 2019, the
Company entered into a letter agreement with Servier, a wholly
owned indirect subsidiary of Les Laboratoires Servier, in
connection with the asset purchase agreement dated as of November
9, 2009 (the “Asset Purchase Agreement”), by and between Klee
Pharmaceuticals, Inc., Defiante Farmacêutica, S.A. (“Defiante”) and
Sigma-Tau, on the one hand, and the Company, on the other hand.
Under the letter agreement, Servier, as successor-in-interest to
Defiante, confirmed its obligation to pay the Company a $7.0
million milestone payment related to SC Oncaspar as a result of the
FDA’s December 20, 2018 approval of calaspargase pegol – mknl
(brand name ASPARLAS™) as a component of a multi-agent
chemotherapeutic regimen for the treatment of acute lymphoblastic
leukemia in pediatric and young adult patients age 1 month to 21
years. In addition, under the letter agreement, the Company agreed
to waive Servier’s obligations to pursue the development of SC
Oncaspar in Europe and the approval of SC Oncaspar by the European
Medicines Agency (“EMEA”) under the Asset Purchase Agreement,
provided that the Company did not waive Servier’s obligation to
make any applicable milestone payment to the Company upon EMEA
approval, if any, of SC Oncaspar. Servier was required to make the
$7.0 million milestone payment to the Company within three business
days following the parties’ completion of procedures for claiming
benefits under the double tax treaty between the United States and
the United Kingdom. The Company recorded that amount as a current
receivable at December 31, 2018. The Company received the $7.0
million payment in July 2019.
The Company has a marketing
agreement with Micromet AG (“Micromet”), now part of Amgen, Inc.
(the “Micromet Marketing Agreement”), that was entered into in 2004
under which Micromet is the exclusive marketer of the parties’
combined intellectual property portfolio in the field of
single-chain antibody technology. Under the Micromet
Marketing Agreement, the parties agreed to share, on an equal
basis, in any licensing fees, milestone payments and royalty
revenue received by Micromet in connection with any licenses of the
patents within the portfolio by Micromet to any third party during
the term of the collaboration. To the Company’s knowledge, Micromet
has a license agreement with Viventia Biotech (Barbados) Inc.
(“Viventia”), now part of Sesen Bio, Inc. (“Sesen”), that was
entered into in 2005, under which Micromet granted Viventia
nonexclusive rights, with certain sublicense rights, for know-how
and patents allowing exploitation of certain single chain antibody
products, which patents cover some key aspects of Vicinium, one of
Sesen’s drug candidates that is in Phase 3 clinical trials being
evaluated for the treatment of patients with non-muscle invasive
bladder cancer and in Phase 1 and 2 clinical trials for the
treatment of head and neck cancer. To the Company’s knowledge,
under the terms of this license agreement between Micromet and
Viventia, Micromet is entitled to receive (i) certain milestone
payments with respect to the filing of a new drug application for
Vicinium with the FDA or the filing of a marketing approval
application for Vicinium with the EMEA; (ii) certain milestone
payments with respect to the first commercial sale of Vicinium in
the U.S. or Europe and (iii) certain royalties on net sales for ten
years from the first commercial sale of Vicinium on a country by
country basis. Pursuant to the Micromet Marketing Agreement, the
Company would be entitled to a 50% share of these milestone
payments and royalties received by Micromet. Due to the challenges
associated with developing and obtaining approval for drug
products, there is substantial uncertainty whether any of these
milestones will be achieved. The Company also has no control over
the time, resources and effort that Sesen may devote to its
programs and limited access to information regarding or resulting
from such programs. Accordingly, there can be no assurance that the
Company will receive any of the milestone or royalty payments under
the Micromet Marketing Agreement. The Company will not recognize
revenue until all revenue recognition requirements are
met.
The Company maintains its principal executive offices at 20
Commerce Drive, Suite 135, Cranford, New Jersey, 07016 through a
lease agreement for space and services with Regus Management Group,
LLC (“Regus”) and also has an office facility at 3556 Main Street,
Manchester, VT, 05225 pursuant to an office rental agreement with
Equinox Junior, LLC (“Equinox”). See Note 13.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (2) |
Summary
of Significant Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of Enzon
Pharmaceuticals, Inc. and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated as part
of the consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. These estimates include legal and
contractual contingencies and income taxes. Although management
bases its estimates on historical experience, relevant current
information and various other assumptions that are believed to be
reasonable under the circumstances, actual results could differ
from these estimates.
Financial Instruments and Fair Value
The carrying values of cash, milestone receivable, other current
assets, accounts payable, accrued expenses and other current
liabilities in the Company’s consolidated balance sheets
approximated their fair values at December 31, 2019 and 2018 due to
their short-term nature. As of December 31, 2019, the Company held
no cash equivalents or marketable securities.
Revenue Recognition
Royalty revenues from the Company’s agreements with third parties
are recognized when the Company can reasonably determine the
amounts earned. In most cases, this will be upon notification from
the third-party licensee, which is typically during the quarter
following the quarter in which the sales occurred. The Company does
not participate in the selling or marketing of products for which
it receives royalties. No provision for uncollectible accounts is
established upon recognition of revenues.
Contingent payments due under the asset purchase agreement for the
sale of the Company’s former specialty pharmaceutical business are
recognized as income when the milestone has been achieved and
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.
Income Taxes
Income taxes are accounted for under the asset and liability
method. 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 realized. The effect of a change in tax rates or
laws on deferred tax assets and liabilities is recognized in
operations in the period that includes the enactment date of the
rate change. A valuation allowance is established to reduce the
deferred tax assets to the amounts that are more likely than not to
be realized from operations.
Tax benefits of uncertain tax positions are recognized only if it
is more likely than not that the Company will be able to sustain a
position taken on an income tax return. The Company has no
liability for uncertain tax positions. Interest and penalties, if
any, related to unrecognized tax benefits, would be recognized as
income tax expense.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (3) |
Recent
Accounting Pronouncements |
During
February 2016, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,
Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize
the assets and liabilities that arise from leases on the balance
sheets. A lessee should recognize in the statement of financial
position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the
underlying asset for the lease term. During 2018, the FASB also
issued ASU No. 2018-01, Land Easement Practical Expedient, which
permits an entity to elect an optional transition practical
expedient to not evaluate land easements that existed or expired
before the entity’s adoption of Topic 842 and that were not
previously accounted for under Accounting Standards Codification
840; ASU 2018-10, Codification Improvements to Topic 842, Leases,
which addresses narrow aspects of the guidance originally issued in
ASU No. 2016-02; ASU 2018-11, Targeted Improvements, which provides
entities with an additional (and optional) transition method
whereby an entity initially applies the new leases standard at the
adoption date and recognizes a cumulative-effect adjustment to the
opening balance of retained earnings in the period of adoption and
also provides lessors with a practical expedient, by class of
underlying asset, to not separate nonlease components from the
associated lease component and, instead, to account for those
components as a single component; and ASU No. 2018-20, Narrow-Scope
Improvements for Lessors, which addresses sales and other similar
taxes collected from lessees, certain lessor costs, and the
recognition of variable payments for contracts with lease and
nonlease components. The Company adopted these ASUs effective
January 1, 2019. Due to the nature of the Company’s lease
obligations (See Note 13), adoption of the standard did not have a
material effect on the Company’s consolidated financial
statements.
Other recent ASU's issued by the FASB and guidance issued by the
Securities and Exchange Commission did not, or are not believed by
management to, have a material effect on the Company’s present or
future consolidated financial statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (4) |
Accounts
Payable and Accrued Expenses |
As of December 31, 2017, according to Merck, the Company had a net
liability to Merck (net of a 25% royalty interest that the Company
had previously sold) aggregating approximately $225,000. This was
based on Merck’s assertions regarding the net result of
overpayments, rebates and returns related to prior periods sales of
PegIntron. Merck expected to recoup such overpayments through
reductions of future royalties earned by the Company. In January
2018, Merck paid $88,000 to the Company, which increased the
asserted liability to $313,000. During the second quarter of 2018,
Enzon earned approximately $60,000 of royalties, which reduced the
purported royalty payable to Merck to $253,000. During the third
quarter of 2018, Merck notified the Company of an additional
recoupment of approximately $280,000, resulting primarily from
product rebates and returns. In the fourth quarter of 2018, Enzon
earned approximately $94,000 of royalties. Accordingly, as asserted
by Merck, the liability to Merck was $439,000 at December 31,
2018.
In the first quarter of 2019, net royalties from PegIntron were
negative $51,000 due to returns and rebates exceeding the amount of
royalties earned. In the second, third and fourth quarters of 2019,
net royalty revenues from sales of PegIntron were $142,000, $2,000
and $22,000, respectively. As such, as asserted by Merck, the
Company’s liability to Merck was $324,000 at December 31, 2019. The
Company believes that it will receive no more royalties from Merck,
but may be charged with additional chargebacks from returns and
rebates in amounts that, based on current estimates, are not
expected to be material.
Accrued expenses and other current liabilities consist of the
following as of December 31, 2019 and 2018 (in thousands):
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2019 |
|
|
2018 |
|
|
Professional and consulting fees |
|
$ |
81 |
|
|
$ |
78 |
|
|
Other |
|
|
18 |
|
|
|
- |
|
| |
|
$ |
99 |
|
|
$ |
78 |
|
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Preferred Stock
The Company has authorized 3,000,000 shares of preferred stock in
one or more series of which 100,000 are designated as Series A in
connection with the Section 382 Rights Plan discussed below.
Common Stock
As of December 31, 2019, the Company reserved 9,818,392 shares of
its common stock for the non-qualified and incentive stock
plans.
On January 30, 2019, the Board declared a special cash dividend of
$0.06 per share of the Company’s common stock, aggregating
approximately $2,653,000, which was paid on March 21, 2019 to
stockholders of record as of the close of business on February 21,
2019. On August 22, 2019, the Board declared a special cash
dividend of $0.12 per share of the Company’s common stock,
aggregating approximately $5,306,000, which was paid on October 15,
2019 to stockholders of record at the close of business on October
1, 2019. See Note 8.
| (7) |
Earnings
(Loss) Per Common Share |
Basic earnings (loss) per common share is computed by dividing the
net income (loss) by the weighted average number of shares of
common stock outstanding during the period. Restricted stock awards
and restricted stock units (collectively, nonvested shares) are not
considered to be outstanding shares until the service or
performance vesting period has been completed.
For purposes of calculating diluted earnings per common share, the
denominator includes both the weighted-average number of shares of
common stock outstanding and the number of common stock equivalents
if the inclusion of such common stock equivalents is dilutive.
Because a loss was incurred in 2019, common stock equivalents would
be anti-dilutive and, accordingly, were excluded from the
calculation of diluted loss per common share. Dilutive common stock
equivalents potentially include stock options and nonvested shares
using the treasury stock method and shares issuable under the
employee stock purchase plan (ESPP). During 2019 and 2018, there
were no common stock equivalents. Earnings (loss) per common share
information is as follows (in thousands, except per share amounts)
for the years ended December 31, 2019 and 2018:
| |
|
2019 |
|
|
2018 |
|
|
Earnings (Loss) per Common Share – Basic and Diluted |
|
|
|
|
|
|
|
|
|
Net (loss) income for year |
|
$ |
(979 |
) |
|
$ |
5,849 |
|
| |
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding |
|
|
44,215 |
|
|
|
44,215 |
|
| |
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share |
|
$ |
(0.02 |
) |
|
$ |
0.13 |
|
At December 31, 2019 and 2018, options for 41,787 shares were
outstanding that have been excluded from the calculation of diluted
weighted-average number of shares outstanding, as they would be
anti-dilutive, since the respective options’ strike price was
greater than the market price of the respective shares.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Through the Compensation Committee of the Board, the Company
administers the 2011 Stock Option and Incentive Plan, which
provides incentive and non-qualified stock option benefits for
employees, officers, directors and independent contractors
providing services to Enzon. Options granted to employees generally
vest over four years from date of grant and options granted to
directors vest after one year. The exercise price of the options
granted must be at least 100 percent of the fair value of the
Company’s common stock at the time the options are granted. Options
may be exercised for a period of up to ten years from the grant
date. As of December 31, 2019, the 2011 plan authorized
equity-based awards for 5 million common shares of which about 4.6
million shares remain available for grant, however, there will be
no further grants made pursuant to those plans.
In connection with the special cash dividends that were paid on
March 21, 2019 to stockholders of record as of February 21, 2019
and on October 15, 2019 to stockholders of record as of October 1,
2019 (see Note 6), the Compensation Committee of the Board approved
equitable adjustments to the Company’s outstanding stock options
and restricted stock units.
The following summary of the activity in the Company’s outstanding
Stock Option Plans, includes the 2011 Stock Option and Incentive
Plan, the 2001 Incentive Stock Plan, and the 1987 Non-Qualified
Stock Option Plan and reflects the equitable adjustments approved
by the Board (options in thousands):
| |
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
Average |
|
|
Average |
|
|
|
|
| |
|
|
|
|
Exercise |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
|
|
|
Price Per |
|
|
Contractual |
|
|
Intrinsic |
|
| |
|
Options |
|
|
Option |
|
|
Term (years) |
|
|
Value ($000) |
|
| Outstanding at December 31,
2019 and 2018 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
$ |
2.93 |
|
|
$ |
1.23 |
|
|
$ |
- |
|
|
December 31, 2018 |
|
|
|
|
|
$ |
3.11 |
|
|
$ |
2.23 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Vested at December 31, 2019
and 2018 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
$ |
2.93 |
|
|
$ |
1.23 |
|
|
$ |
- |
|
|
December 31, 2018 |
|
|
|
|
|
$ |
3.11 |
|
|
$ |
2.23 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable at December 31,
2019 and 2018 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
$ |
2.93 |
|
|
$ |
1.23 |
|
|
$ |
- |
|
|
December 31, 2018 |
|
|
|
|
|
$ |
3.11 |
|
|
$ |
2.23 |
|
|
$ |
- |
|
As of December 31, 2019, there was no unrecognized compensation
cost related to unvested options that the Company expects to
recognize.
No options were granted during the years ended December 31, 2019
and 2018.
In the years ended December 31, 2019 and 2018, the Company recorded
no stock-based compensation related to stock options. The Company’s
policy is to use newly issued shares to satisfy the exercise of
stock options.
The Company received no cash from exercises of stock options in
either of the years ended December 31, 2019 and 2018.
| (9) |
Restricted
Stock Awards and Restricted Stock Units (Nonvested
Shares) |
The 2011 Stock Option and Incentive Plan and, prior to that, the
2001 Incentive Stock Plan provide for the issuance of restricted
stock awards and restricted stock units (collectively, nonvested
shares) to employees, officers and directors. However, there will
be no further grants made pursuant to those plans and, as of
December 31, 2019, there were no nonvested shares outstanding.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the income tax provision are summarized as
follows (in thousands):
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
- |
|
|
$ |
- |
|
|
State and foreign |
|
|
6 |
|
|
|
6 |
|
|
Total current |
|
|
6 |
|
|
|
6 |
|
| Deferred: |
|
|
|
|
|
|
|
|
|
Federal and state |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
6 |
|
|
$ |
6 |
|
The following table represents the reconciliation between the
reported income taxes and the income taxes that would be computed
by applying the federal statutory rate (21% for years ended
December 31, 2019 and 2018 to income before taxes (in
thousands):
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
|
Income tax provision at federal statutory rate |
|
$ |
(204 |
) |
|
$ |
1,229 |
|
| Add
(deduct) effect of: |
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax |
|
|
(65 |
) |
|
|
505 |
|
|
Expiration of federal research and development credits |
|
|
416 |
|
|
|
356 |
|
|
Expiration of capital loss carryforwards |
|
|
- |
|
|
|
248 |
|
|
Change in valuation allowance |
|
|
(141 |
) |
|
|
(2,332 |
) |
| |
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
6 |
|
|
$ |
6 |
|
No federal income tax expense was incurred in relation to normal
operating results due to the utilization of deferred tax assets and
related changes in valuation allowance.
As of December 31, 2019 and 2018, the cumulative tax effects of
temporary differences that give rise to the deferred tax assets are
as follows (in thousands):
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2019 |
|
|
2018 |
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Federal and state net operating loss carryforward |
|
$ |
23,030 |
|
|
$ |
22,755 |
|
|
Research and development credits carryforward |
|
|
15,835 |
|
|
|
16,252 |
|
|
Total gross deferred tax assets |
|
|
38,865 |
|
|
|
39,007 |
|
|
Less valuation allowance |
|
|
(38,865 |
) |
|
|
(39,007 |
) |
|
Net deferred tax assets |
|
$ |
- |
|
|
$ |
- |
|
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ASC 740 requires the reduction of deferred tax assets by a
valuation allowance if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax
assets will not be realized. For the period ended December 31,
2018, the Company believed that it was more likely than not that
future taxable income would not exist to utilize some or all of
their deferred tax assets. Accordingly, it recorded a valuation
allowance in the amount of its total deferred tax assets for the
period ended December 31, 2018. In 2019, the Company generated $979
thousand in taxable loss before utilization of net operating loss
carryforwards. The Company utilized none of the net operating loss
carryforwards due to the taxable loss position. Due to the
valuation allowance placed on its deferred tax assets, the deferred
tax expense resulting from the usage and/or expiration of deferred
tax assets was offset by a corresponding deferred tax benefit from
a reduction in valuation allowance, and the Company recorded no
deferred tax expense at December 31, 2019. The Company is
projecting future tax losses and has recorded a full valuation
allowance against the remaining deferred tax assets as of December
31, 2019, as the Company believes it is more likely than not that
these assets will not be realized.
At December 31, 2019, the Company had federal net operating loss
carryforwards of approximately $101.6 million, of which
approximately $100.6 million will expire in the years 2025 through
2036, and New Jersey state net operating loss carryforwards of
approximately $23.9 million that expire in the years 2031 through
2039. Under the Act, net operating losses generated in tax years
beginning after December 31, 2017 have an unlimited carryforward
period, and the amount of net operating loss allowed to be utilized
each year is limited to 80% of taxable income.
The Company had federal and state capital loss carryforwards of
approximately $1.2 million that expired in 2018. The Company also
had federal research and development (“R&D”) credit
carryforwards of approximately $0.4 million that expired in 2019.
The Company has remaining R&D credit carryforwards of
approximately $15.8 million that expire in the years 2020 through
2029. These deferred tax assets had been subject to a valuation
allowance such that the deferred tax expense incurred as a result
of the expiration of the capital loss and R&D credit
carryforwards was offset by a corresponding deferred tax benefit
for the related reduction in valuation allowance.
The Company’s ability to use the net operating loss and R&D tax
credit carryforwards may be limited, as it is subject to certain
limitations due to ownership changes as defined by rules pursuant
to Section 382 of the Internal Revenue Code of 1986, as
amended.
The Company has not recorded a liability for unrecognized income
tax benefits.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (11) |
Significant
Agreements |
Merck Agreement
See Note 1 regarding Merck royalty revenues.
Servier Agreement
See Note 1 regarding the Servier milestone obligation to the
Company.
Nektar Agreement
See Note 1 regarding the Nektar Second Amendment, wherein Nektar
agreed to buy-out all remaining payment obligations to the Company
under the Nektar License Agreement.
| (12) |
Commitments
and Contingent Liabilities |
The Company has been involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have
a material effect on the Company’s consolidated financial position,
results of operations, or liquidity.
Principal Executive Offices and Office Service
Agreements
Commencing on March 1, 2016, the Company changed the location of
its principal executive offices to 20 Commerce Drive, Suite 135,
Cranford, New Jersey, 07016. The Company entered into an office
service agreement with Regus for use of office space at this
location effective March 1, 2016. In June 2018, the Company and
Regus agreed to end the lease on August 31, 2018, and replace it
with an updated office service agreement. The Company entered into
an office service agreement with Regus for mailbox plus, telephone
answering, and virtual office services effective September 1, 2018.
Under the agreement, in exchange for the services provided by
Regus, the Company was required to pay Regus an initial service
retainer of $259 and thereafter pay Regus a monthly fee of $259
until August 31, 2020.
Effective July 1, 2018, the Company entered into an office rental
agreement with Equinox for use of office space at 3556 Main Street,
Manchester, VT, 05225. Under this agreement, in exchange for the
Company’s right to use the office space at this location, the
Company is required to pay Equinox a monthly fee of $729 until June
30, 2020.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (14) |
Other
Corporate Events |
On February 4, 2016, the Board adopted the Plan of Liquidation and
Dissolution, pursuant to which the Company would, subject to
obtaining requisite stockholder approval, be liquidated and
dissolved in accordance with Sections 280 and 281(a) of the General
Corporation Law of the State of Delaware. In approving the Plan of
Liquidation and Dissolution, the Board had considered, among other
factors, the ability of the Company to obtain no-action relief from
the SEC to suspend certain of the Company’s reporting obligations
under the Securities Exchange Act of 1934, as amended, and the
anticipated cost savings if such relief is granted by the SEC.
After further consideration, the Board determined that it would be
fair, advisable and in the best interests of the Company and its
stockholders to postpone seeking stockholder approval of the Plan
of Liquidation and Dissolution until a later time to be determined
by the Board.
From time to time, the Board reviews the Company’s status and
prospects in deciding on the timing of dissolution and liquidation
of the Company pursuant to the Plan of Liquidation and Dissolution.
If the Board determines to seek stockholder approval of such plan
and such plan is approved by the Company’s stockholders and
implemented by the Company, it is expected that the Company’s
corporate existence will continue for the purpose of winding up its
business and affairs for at least three years. The Company has
forecasted minimal or no royalty or milestone revenues for the
foreseeable future. In light of the uncertainty as to whether any
of the milestones under the Micromet Marketing Agreement would be
achieved, this forecast assumes that the Company would not receive
any milestone or royalty payments under the Micromet Marketing
Agreement.
