UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x |
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
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 001-36435
Enzon Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
| Delaware |
22-2372868 |
| (State of incorporation) |
(I.R.S. Employer Identification
No.) |
| |
|
| 20 Commerce Drive
(Suite 135), Cranford, New Jersey |
07016 |
| (Address of principal executive
offices) |
(Zip Code) |
(732) 980-4500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class |
|
Trading Symbol(s) |
|
Name of Each Exchange on Which Registered |
| None |
|
N/A |
|
N/A |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities 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. Yes x 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). Yes
x No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth 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 filerx |
|
|
| |
|
Smaller reporting companyx |
| |
|
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 Exchange Act). Yes
¨ No x
Shares of Common Stock outstanding as of October 30, 2020:
74,214,603
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| |
|
September 30,
2020 |
|
|
December 31,
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
5,311 |
|
|
$ |
5,446 |
|
| Deferred
stock offering expenses |
|
|
457 |
|
|
|
- |
|
|
Refundable tax credits receivable, current portion |
|
|
- |
|
|
|
485 |
|
|
Other current assets |
|
|
56 |
|
|
|
62 |
|
| Total
current assets |
|
|
5,824 |
|
|
|
5,993 |
|
|
Refundable tax credits receivable, net of current portion |
|
|
- |
|
|
|
485 |
|
| |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,824 |
|
|
$ |
6,478 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
306 |
|
|
$ |
324 |
|
|
Accrued expenses and other current liabilities |
|
|
348 |
|
|
|
99 |
|
|
Total current liabilities |
|
|
654 |
|
|
|
423 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and
contingencies |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
equity: |
|
|
|
|
|
|
|
|
|
Preferred stock - $0.01 par value, authorized 3,000,000 shares; no
shares issued and outstanding at September 30, 2020 and
December 31, 2019 |
|
|
- |
|
|
|
- |
|
|
Common stock - $0.01 par value, authorized 170,000,000 shares;
issued and outstanding 44,214,603 shares at September 30, 2020
and December 31, 2019 |
|
|
442 |
|
|
|
442 |
|
|
Additional paid-in capital |
|
|
75,690 |
|
|
|
75,690 |
|
|
Accumulated deficit |
|
|
(70,962 |
) |
|
|
(70,077 |
) |
|
Total stockholders’ equity |
|
|
5,170 |
|
|
|
6,055 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
5,824 |
|
|
$ |
6,478 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| |
|
Three
months ended |
|
|
Nine
months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties, net |
|
$ |
8 |
|
|
$ |
2 |
|
|
$ |
18 |
|
|
$ |
158 |
|
|
Total revenues |
|
|
8 |
|
|
|
2 |
|
|
|
18 |
|
|
|
158 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
415 |
|
|
|
327 |
|
|
|
901 |
|
|
|
873 |
|
|
Total operating expenses |
|
|
415 |
|
|
|
327 |
|
|
|
901 |
|
|
|
873 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating loss and
loss before income tax expense |
|
|
(407 |
) |
|
|
(325 |
) |
|
|
(883 |
) |
|
|
(715 |
) |
|
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
|
Net loss |
|
$ |
(407 |
) |
|
$ |
(325 |
) |
|
$ |
(885 |
) |
|
$ |
(717 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
Diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average
number of shares – basic |
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
| Weighted-average
number of shares – diluted |
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(In thousands)
(Unaudited)
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Par |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
| Balance, December 31,
2018 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
83,649 |
|
|
$ |
(69,098 |
) |
|
$ |
14,993 |
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(371 |
) |
|
|
(371 |
) |
|
Common stock dividend |
|
|
- |
|
|
|
- |
|
|
|
(2,653 |
) |
|
|
- |
|
|
|
(2,653 |
) |
| Balance, March 31, 2019 |
|
|
44,215 |
|
|
|
442 |
|
|
|
80,996 |
|
|
|
(69,469 |
) |
|
|
11,969 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
|
|
(21 |
) |
| Balance, June 30, 2019 |
|
|
44,215 |
|
|
|
442 |
|
|
|
80,996 |
|
|
|
(69,490 |
) |
|
|
11,948 |
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(325 |
) |
|
|
(325 |
) |
|
Common stock dividend |
|
|
- |
|
|
|
- |
|
|
|
(5,306 |
) |
|
|
- |
|
|
|
(5,306 |
) |
| Balance,
September 30, 2019 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
75,690 |
|
|
$ |
(69,815 |
) |
|
$ |
6,317 |
|
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Par |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
| Balance, December 31,
2019 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
75,690 |
|
|
$ |
(70,077 |
) |
|
$ |
6,055 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(242 |
) |
|
|
(242 |
) |
| Balance, March 31, 2020 |
|
|
44,215 |
|
|
|
442 |
|
|
|
75,690 |
|
|
|
(70,319 |
) |
|
|
5,813 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(236 |
) |
|
|
(236 |
) |
| Balance, June 30, 2020 |
|
|
44,215 |
|
|
|
442 |
|
|
|
75,690 |
|
|
|
(70,555 |
) |
|
|
5,577 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(407 |
) |
|
|
(407 |
) |
| Balance,
September 30, 2020 |
|
|
44,215 |
|
|
$ |
442 |
|
|
$ |
75,690 |
|
|
$ |
(70,962 |
) |
|
$ |
5,170 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| |
|
Nine
months ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(885 |
) |
|
$ |
(717 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
1,050 |
|
|
|
6,886 |
|
|
Net cash provided by operating activities |
|
|
165 |
|
|
|
6,169 |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
| Payment
of deferred stock offering expenses |
|
|
(300 |
) |
|
|
- |
|
|
Common stock dividend payments |
|
|
- |
|
|
|
(2,653 |
) |
|
Net cash used in financing activities |
|
|
(300 |
) |
|
|
(2,653 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase
(decrease) in cash |
|
|
(135 |
) |
|
|
3,516 |
|
| |
|
|
|
|
|
|
|
|
| Cash beginning of
period |
|
|
5,446 |
|
|
|
6,500 |
|
| |
|
|
|
|
|
|
|
|
| Cash end of
period |
|
$ |
5,311 |
|
|
$ |
10,016 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental non-cash
financing disclosure: |
|
|
|
|
|
|
|
|
|
Deferred stock offering expenses |
|
$ |
157 |
|
|
$ |
- |
|
|
Dividend declared in August 2019; paid in
October 2019 |
|
$ |
- |
|
|
$ |
(5,306 |
) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (1) |
Description of Business |
Enzon Pharmaceuticals, Inc. (together with its subsidiaries,
“Enzon” or the “Company,” “we” or “us”), is positioned as a public
company acquisition vehicle, where the Company can become an
acquisition platform and more fully utilize our net operating loss
carryforwards (“NOLs”) and enhance stockholder value.
The Company initiated a Rights Offering for common and preferred
stock of the Company in September 2020 (see below and Note 15),
which closed in October 2020, and realized $43.6 million in gross
proceeds for the Company. This has enabled the Company to embark on
its plan to realize the value of its more than $100 million NOLs by
acquiring potentially profitable businesses or assets. To protect
the NOLs, in August 2020, the Company’s Board of Directors
adopted a Section 382 rights plan (see Note 14).
Historically, the Company has received royalty revenues from
licensing arrangements with other companies primarily related to
sales of certain drug products that utilized Enzon’s proprietary
technology. In recent years, the Company has had no clinical
operations and limited corporate operations. The Company does have
a series of licensing agreements in the drug Vicineum, which, if
approved, will potentially generate milestone and royalty payments
to the Company in the future.
Prior to 2017, the Company received royalty revenues from sales of
PegIntron, which is marketed by Merck & Co., Inc.
(“Merck”). In 2020 net royalties from PegIntron have not been
significant. There is a dispute with Merck regarding royalties (see
Note 12). The Company has certain royalty agreements regarding SC
Oncaspar and certain other drugs.
The Company had, since 2013, planned to distribute excess cash to
stockholders from its royalty revenues. In 2016, the Company’s
Board of Directors adopted a Plan of Liquidation and Dissolution
(the “Plan”). Following each subsequent periodic assessment, the
Company’s Board of Directors postponed seeking shareholder approval
of the Plan, and on November 9, 2020, the Company’s Board of
Directors withdrew and terminated the Plan as the result of its
successful rights offering (see above and Notes 11 and 15).
The Company maintains its principal executive offices at 20
Commerce Drive, Suite 135, Cranford, New Jersey, 07016.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (2) |
Basis of Presentation |
Interim Financial Statements
The accompanying unaudited condensed consolidated financial
statements have been prepared from the books and records of the
Company in accordance with United States generally accepted
accounting principles (U.S. GAAP) for interim financial information
and Rule 10-01 of Regulation S-X promulgated by the U.S.
Securities and Exchange Commission (SEC). Accordingly, these
financial statements do not include all of the information and
footnotes required for complete annual financial statements.
Interim results are not necessarily indicative of the results that
may be expected for the full year. Interim condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019.
Principles of Consolidation
The condensed consolidated financial statements include the
accounts of the Company 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 U.S. GAAP 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.
Deferred Stock Offering Expenses
The Company classifies amounts related to the Rights Offering (see
Note 13) not completed as of the balance sheet date as Deferred
Stock Offering Expenses. Such costs will be reclassified as an
offset to Additional Paid-in-Capital upon termination of the Rights
Offering.
During the nine months ended September 30, 2020, the Company
incurred approximately $457,000 of offering related costs, all
of which was incurred during the three months ended
September 30, 2020.
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 revenue 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (3) |
Recent Accounting
Pronouncements |
Recent Accounting Standards Updates issued by the Financial
Accounting Standards Board 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
Condensed Consolidated Financial Statements.
| (4) |
Financial Instruments and Fair
Value |
The carrying values of cash, other current assets, accounts
payable, accrued expenses and other current liabilities in the
Company’s condensed consolidated balance sheets approximated their
fair values at September 30, 2020 and December 31, 2019
due to their short-term nature.
| (5) |
Supplemental Cash Flow
Information |
The Company made no income tax payments during the nine months
ended September 30, 2020 and paid $2,000 to the State of New Jersey
during the nine-month period ended September 30, 2019.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (6) |
Loss Per Common Share |
Basic earnings per common share is computed by dividing the net
income 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.
The diluted earnings per share calculation would normally involve
adjusting both the denominator and numerator as described here if
the effect is dilutive.
For purposes of calculating diluted earnings per common share, the
denominator normally 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 each of the three and
nine-month periods ended September 30, 2020 and 2019, common
stock equivalents would be anti-dilutive and, accordingly, were
excluded from the calculation of diluted loss per share in each of
the periods. 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. During
each of the nine-month periods ended September 30, 2020 and
2019, there were no common stock equivalents. Loss per common share
information is as follows (in thousands, except per share amounts)
for the three months and nine months ended September 30, 2020
and 2019:
| |
|
Three months ended
September 30, |
|
|
Nine months ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Loss Per Common Share – Basic and Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(407 |
) |
|
$ |
(325 |
) |
|
$ |
(885 |
) |
|
$ |
(717 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding |
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
|
|
44,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic
and diluted loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
For each of the nine-month periods ended September 30, 2020
and 2019 and the three-month periods ended September 30, 2020
and 2019, there were 41,787 potentially dilutive securities
outstanding that have been excluded from the calculation of
dilutive weighted average shares outstanding, as they would be
anti-dilutive.
On January 30, 2019, the Board of Directors of the Company
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. There were no
dividends declared or paid in the three or nine-month periods ended
September 30, 2020.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (8) |
Stock-Based
Compensation |
Stock Options and Restricted Stock Units (RSUs or Nonvested
Shares)
During the nine months ended September 30, 2020, no options
were granted, and the Company incurred no stock-based compensation
expense. No RSUs were outstanding as of September 30,
2020.
There were no options granted during the nine months ended
September 30, 2019 and no nonvested shares granted or
outstanding during the nine months ended September 30, 2019.
The Company uses historical data to estimate forfeiture rates.
Activity related to stock options and nonvested shares during the
nine months ended September 30, 2020 and related balances
outstanding as of that date are reflected below (in thousands):
| |
|
Stock |
|
| |
|
Options |
|
| Outstanding at
January 1, 2020 |
|
|
41,787 |
|
| Granted |
|
|
- |
|
|
Exercised and vested |
|
|
- |
|
|
Expired and forfeited |
|
|
- |
|
| Outstanding at
September 30, 2020 |
|
|
41,787 |
|
| |
|
|
|
|
| Options vested
at September 30, 2020 |
|
|
41,787 |
|
| |
|
|
|
|
| Options
exercisable at September 30, 2020 |
|
|
41,787 |
|
During the nine-month and three-month periods ended
September 30, 2020, the Company recorded approximately $2,000
and $0, respectively, of income tax expense for New Jersey state
income tax.
During the nine-month and three-month periods ended
September 30, 2019, the Company recorded approximately $2,000
and $0, respectively, of income tax expense for New Jersey state
income tax.
As of September 30, 2020, the Company continues to provide a
valuation allowance against all of its deferred tax assets, as the
Company believes it is more likely than not that its deferred tax
assets will not be realized. However, although there can be no
certainty of such, if the Company’s acquisition strategy is
successful and future taxable income is projected, among other
things, the valuation allowance will be reevaluated. Management of
the Company will continue to assess the need for this valuation
allowance and will make adjustments if and when appropriate.
Additionally, management of the Company believes that the Company’s
net operating loss carryforwards will not be limited by any changes
in the Company’s ownership as a result of the successful Completion
of the Rights Offering (see Note 15).
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.
On December 22, 2017, the Tax
Cuts and Jobs Act was signed into law. Among its numerous changes
to the Internal Revenue Code, the Tax Cut and Jobs Act allowed
companies with existing alternative minimum tax credit (“MTC”)
carryforwards as of December 31, 2017 to receive refunds of
the credits in tax years after 2017 and before 2022 in an amount
equal to 50% (100% in 2021) of the excess MTC over the amount of
the credit allowable for the year against regular tax
liability. As a result of the Tax Cuts and Jobs Act’s provision allowing
for the refund of MTC, the Company had recorded $485,000 as a
long-term receivable and $485,000 as a current receivable as of
December 31, 2019. As a result of provision in the Coronavirus
Aid, Relief and Economic Security Act (the “CARES Act”) that was
signed into law on March 27, 2020, the Company was able to
reclassify the remaining long-term receivable of $485,000 as a
current receivable as of March 31, 2020. This amount was
received in June 2020.
The CARES Act also provides for an
indefinite carryforward period and five-year carryback period for
net operating losses generated after 2017, but before 2021,
and removes the annual utilization limit of 80% of taxable income
and allows the net operating losses to offset 100% of taxable
income during this period. Net operating losses generated prior to
2018 continue to be carried forward for 20 years and have no 80%
limitation on utilization.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (10) |
Commitments and Contingent
Liabilities |
In December 2019, an outbreak of a novel strain
of coronavirus (COVID-19) was reported in Wuhan, China.
On March 11, 2020, the World Health Organization characterized
the global spread of COVID-19 as a pandemic. In an effort to slow
the spread of the virus, the United States and many other countries
around the world imposed restrictions on non-essential work
activities, travel and mass gatherings. Although these restrictions
have been eased in some areas, it is not known whether these
lockdowns and other restrictions will be reintroduced, when they
will end or the ultimate impact these unprecedented actions will
have on the Company’s financial condition and prospects. At the
present time, the Company’s business activities have been largely
unaffected by COVID-19 restrictions as the Company’s workforce is
comprised solely of independent contractors who are able to perform
their duties remotely. However, these restrictions may impact the
third parties who are responsible for obtaining final approval of
and manufacturing product candidates for which we share the right to receive
licensing fees, milestone payments and royalty revenues. If those
third parties are required to curtail their business activities for
a significant time, or if global supply chain
disruptions impact their ability to procure needed
resources, raw materials or components, the Company’s right to
receive licensing fees, milestone payments or royalties could be
materially and adversely affected. Additionally, the development
timeline for product candidates being developed by third parties
that are pending FDA or other regulatory approval could be delayed
if the agency is required to shift resources to the review and
approval of candidates for treatment of COVID-19.
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.
| (11) |
Plan of
Liquidation and Dissolution |
On February 4, 2016, the Company’s Board of Directors adopted
the Plan of Liquidation and Dissolution (the “Plan”), 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. Following each subsequent periodic assessment, the
Company’s Board of Directors postponed seeking stockholder approval
of the Plan. On November 9, 2020, the Company’s Board of
Directors withdrew and terminated the Plan as a result of the
completion of the Rights Offering. See Note 15.
As of December 31, 2019, 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 $324,000.
This was based on Merck’s assertions regarding the net result of
overpayments, rebates and returns related to prior period sales of
PegIntron. Merck expected to recoup such overpayments through
reductions of future royalties earned by the Company.
In the first, second and third quarters of 2020, as reported by
Merck, net royalties from PegIntron were approximately $2,000,
$8,000 and $8,000, respectively. As such, as asserted by Merck, the
Company’s liability to Merck was approximately $306,000 at
September 30, 2020. The Company believes that it will receive
no more significant 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.
| (13) |
Corporate
Governance |
Board of Directors
On August 4, 2020, the Company’s Board of Directors appointed
Mr. Jordan Bleznick and Mr. Randolph C. Read as directors
to the Board, effective August 4, 2020, to fill the vacancies
created by the resignations of Mr. Jonathan Christodoro and
Dr. Odysseas Kostas (neither, as the result of any
disagreement with the Company on any matter relating to the
Company’s operations, policies or practices) as of the same date.
Messrs. Bleznick and Read will each serve until the next
annual meeting of our stockholders and until such director’s
successor is elected and qualified, subject to such director’s
earlier death, resignation, disqualification or removal.
Mr. Bleznick was appointed by the Company’s Board of Directors
after discussions with Carl C. Icahn, one of the Company’s largest
stockholders, and after consideration by the Governance and
Nominating Committee. There are no arrangements or understandings
between Mr. Bleznick and any other persons pursuant to which
Mr. Bleznick was selected as a director. Mr. Read was
appointed by the Board after consideration by the Governance and
Nominating Committee. There are no arrangements or understandings
between Mr. Read and any other persons pursuant to which
Mr. Read was selected as a director.
Following the new Board appointments, Mr. Read was elected as
Chairman of the Board. The Board also appointed
Messrs. Bleznick and Read to its Finance and Audit Committee,
replacing Mr. Christodoro and Dr. Kostas, having
determined that each meets the requirements for financial literacy
and independence that the Board has used to select members of that
committee. Jennifer McNealey, who also serves as a director on the
Board, is the other member of the Finance and Audit Committee.
Messrs. Bleznick and Read were each determined by the Board to
qualify as an “audit committee financial expert,” as defined in
Item 407(d)(5) of Regulation S-K. Mr. Read was elected as
the Chairman of the Audit Committee. In November 2020, Mr. Bleznick
resigned from the Finance and Audit Committee, but maintains his
position on the Company’s Board of Directors.
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (14) |
Section 382 Rights Plan |
On August 14, 2020, the Company’s Board of Directors adopted a
Section 382 rights plan and declared a dividend distribution
of one right for each outstanding share of the Company’s common
stock to stockholders of record at the close of business on
August 24, 2020. Accordingly, holders of the Company’s common
stock own one preferred stock purchase right for each share of
common stock owned by such holder. The rights are not immediately
exercisable and will become exercisable only upon the occurrence of
certain events as set forth in the Section 382 rights plan. If
the rights become exercisable, each right would initially represent
the right to purchase from the Company one one-thousandth of a
share of the Company’s Series A-1 Junior Participating
Preferred Stock, par value $0.01 per share, for a purchase price of
$1.20 per right. If issued, each fractional share of
Series A-1 Junior Participating Preferred Stock would give the
stockholder approximately the same dividend, voting and liquidation
rights as does one share of the Company’s common stock. However,
prior to exercise, a right does not give its holder any rights as a
stockholder of the Company, including any dividend, voting or
liquidation rights. The rights will expire on the earliest of
(i) the close of business on August 13, 2021 (unless that
date is advanced or extended by the Board), (ii) the time at
which the rights are redeemed or exchanged under the
Section 382 rights plan, (iii) the close of business on
the day of repeal of Section 382 or any successor statute or
(iv) the close of business on the first day of a taxable year
of the Company to which the Company’s Board of Directors determines
that no net operating loss carryforwards may be carried
forward.
On September 1, 2020, the Company’s Board of Directors
approved a Rights Offering, by which the Company distributed, at no
charge to all holders of its common stock on September 23,
2020 (the “Record Date”), transferable subscription rights to
purchase Units at a subscription price per Unit of $1,090. In the
Rights Offering each stockholder received one subscription right
for every share of common stock owned at 5:00 p.m., New York City
time, on the Record Date. For every 1,105 subscription rights held,
a stockholder was entitled to purchase one Unit at the subscription
price. Each Unit consisted of newly designated Series C
preferred stock, par value $0.01, and 750 shares of the Company’s
common stock. It is the intention of the Company to use the
approximately $43 million of net proceeds from the Rights Offering,
to position the Company as a public company acquisition vehicle,
where it can become an acquisition platform and more fully utilize
its net operating loss carryforwards and enhance stockholder value.
The Company does not, however, have any current plans, arrangements
or understandings with respect to any acquisitions or investment
and is, currently, not involved in any negotiations with respect to
any such transactions.
On an annual basis, the Company’s Board of Directors may, at its
sole discretion, cause a dividend with respect to the Series C
Preferred Stock to be paid in cash to the holders in an amount
equal to 3% of the liquidation preference as in effect at such time
(initially $1,000 per share). If the dividend is not so paid in
cash, the liquidation preference will be adjusted and increased
annually by an amount equal to 5% of the liquidation preference per
share as in effect at such time, that is not paid in cash to the
holders on such date. Holders of Series C preferred stock do
not have any voting rights and the Series C preferred stock is
not convertible into shares of the Company’s common stock. The
initial liquidation value of the Series C preferred stock is
$1,000 per share. On or after November 1, 2022, the Company
may redeem the Series C preferred stock at any time, in whole
or in part, based on the liquidation preference per share as in
effect at such time. Holders of Series C preferred stock have
the right to demand that the Company redeem their shares in the
event that the Company undergoes a change of control.
On September 1, 2020, the Company entered into an Investment
Agreement with Icahn Capital LP (the “Investment Agreement”) in
connection with the Rights Offering. Icahn Capital LP, together
with its affiliates, owned approximately 15% of the Company’s then
outstanding shares of common stock and is one of the Company’s
largest stockholders.
| (15) |
Rights
Offering (continued) |
Subject to the terms and conditions of the Investment
Agreement, Icahn Capital LP agreed to subscribe for its
pro-rata share of the Rights Offering and to purchase all units
that remain unsubscribed for at the expiration of the Rights
Offering to the extent that other holders elected not to exercise
all of their respective subscription rights. No fees were paid by
the Company to Icahn Capital LP in consideration of such investment
commitment. In connection with the execution of the Investment
Agreement, the parties agreed to terminate the Standstill
Agreement, dated December 18, 2016, by and between the
Company, Icahn Capital LP and the other affiliated parties
identified therein, so that it shall be of no further force or
effect; and waive the applicability of Section 203 of the
Delaware General Corporation Law of the State of Delaware to Icahn
Capital LP and its affiliates. In addition, the Company agreed to
use its best efforts to register for resale all of the shares of
the Company’s common stock then held by Icahn Capital LP and its
affiliates following the closing of the Rights Offering.
The subscription period for the Rights Offering ended on
October 9, 2020. On October 14, 2020, the Company
reported that stockholders exercised subscription rights to
purchase 6,694 units. Pursuant to the Investment
Agreement, Icahn Capital LP subscribed for 5,971 of such units
(its pro-rata share of the Rights Offering). In addition, pursuant
to its investment commitment Icahn Capital LP to purchased
all 33,306 units that remained unsubscribed for at the expiration
of the Rights Offering. As a result of such purchases, Icahn
capital LP and its affiliates own 48.6% of the Company’s common
stock.
As a result of the sale of all 40,000 units available for purchase
in the Rights Offering, the Company currently has 40,000 shares of
Series C preferred stock outstanding and an aggregate of
74,214,603 shares of common stock outstanding following the Rights
Offering and realized gross proceeds of $43.6 million.
The Company believes that the completion of the Rights Offering
will not limit the use of its net operating loss carryforwards due
to any Section 382 limitations.
Assuming the Rights Offering closed on September 30, 2020, the
Series C preferred shares were issued, the common shares were
issued and the gross proceeds of $43.6 million had been received as
of that date, the following are the pro forma balance sheet and
calculation of pro forma loss per share:
Enzon Pharmaceuticals, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2020
(In thousands)
(Unaudited)
| ASSETS |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Pro
Forma |
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
Pro Forma |
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
5,311 |
|
|
$ |
43,600 |
(1) |
|
$ |
48,911 |
|
|
Deferred offering costs |
|
|
457 |
|
|
|
(457 |
) (2) |
|
|
- |
|
|
Other current assets |
|
|
56 |
|
|
|
|
|
|
|
56 |
|
| Total
assets |
|
$ |
5,824 |
|
|
$ |
43,143 |
|
|
$ |
48,967 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current
liabilities |
|
$ |
654 |
|
|
$ |
- |
|
|
$ |
654 |
|
|
Total liabilities |
|
|
654 |
|
|
|
- |
|
|
|
654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Mezzanine equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C preferred stock - $1,000 par value, |
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 shares authorized, issued, and outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
(liquidation value $40,000) |
|
|
- |
|
|
|
40,000 |
(3) |
|
|
40,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders'
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - $0.01 par value, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,960,000 shares authorized; no shares issued and outstanding |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Common stock - $.01 par value, 74,214,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
shares authorized, issued, and outstanding |
|
|
442 |
|
|
|
300 |
(4) |
|
|
742 |
|
|
Additional paid-in capital |
|
|
75,690 |
|
|
|
2,843 |
(5) |
|
|
78,533 |
|
|
Accumulated deficit |
|
|
(70,962 |
) |
|
|
- |
|
|
|
(70,962 |
) |
|
Total stockholders' equity |
|
|
5,170 |
|
|
|
3,143 |
|
|
|
8,313 |
|
|
Total liabilities, mezzanine equity and stockholders' equity |
|
$ |
5,824 |
|
|
$ |
43,143 |
|
|
$ |
48,967 |
|
Pro FormaAdjustments
|
(1) |
To record receipt of proceeds of
Rights Offering |
|
(2) |
To record reclassification of
deferred offering costs |
|
(3) |
To record issuance of 40,000 shares
of Series C preferred stock at par value |
|
(4) |
To record issuance of 30 million
shares of common stock at par value |
|
(5) |
To record addition of $3.3 million
of capital in excess of par value less $457,000 of deferred
offering costs |
Enzon Pharmaceuticals, Inc. and Subsidiaries
Pro Forma Loss Per Share- Basic and Diluted
For the Periods
(In thousands except per share data)
(Unaudited)
| |
|
Three Months Ended September 30, 2020 |
|
| |
|
|
|
|
Pro
Forma |
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
Pro Forma |
|
| |
|
|
|
|
|
|
|
|
|
| Loss |
|
$ |
(407 |
) |
|
|
|
|
|
$ |
(885 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
shares outstanding |
|
|
44,215 |
|
|
|
30,000 |
(x) |
|
|
74,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per
share - basic and diluted |
|
$ |
(0.01 |
) |
|
|
|
|
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, 2020 |
|
| |
|
|
|
|
Pro
Forma |
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
Pro Forma |
|
| |
|
|
|
|
|
|
|
|
|
| Loss |
|
$ |
(885 |
) |
|
|
|
|
|
$ |
(885 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
shares outstanding |
|
|
44,215 |
|
|
|
30,000 |
(x) |
|
|
74,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per
share - basic and diluted |
|
$ |
(0.02 |
) |
|
|
|
|
|
$ |
(0.01 |
) |
Pro Forma Adjustments
|
(x) |
To record issuance of common shares
pursuant to the Rights Offering |
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Unless the context requires otherwise, references in this Quarterly
Report on Form 10-Q to “Enzon,” the “Company,” “we,” “us,” or
“our” and similar terms mean Enzon Pharmaceuticals, Inc. and
its subsidiaries. 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 Quarterly Report on Form 10-Q and
our 2019 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 in our 2019 Annual Report on Form 10-K. These
risks and uncertainties should be considered carefully and readers
are cautioned not to place undue reliance on such forward-looking
statements. As such, no assurance can be given that the future
results covered by the forward-looking statements will be
achieved.
The percentage changes throughout the following discussion are
based on amounts stated in thousands of dollars reflected in this
section.
Overview
We are positioned as a public company acquisition vehicle, where we
can become an acquisition platform and more fully utilize our net
operating loss carryforwards (“NOLs”) and enhance stockholder
value.
In September 2020, we initiated a Rights Offering for our common
and preferred stock (see below and Note 15 to our Condensed
Consolidated Financial Statements), which closed in October 2020,
and we realized $43.6 million in gross proceeds. This has enabled
us to embark on our plan to realize the value of our more than $100
million net NOLs by acquiring potentially profitable businesses or
assets. To protect the NOLs, in August 2020, our Board of
Directors adopted a Section 382 rights plan (see Note 14 to
our Condensed Consolidated Financial Statements).
Historically, we have received royalty revenues from licensing
arrangements with other companies primarily related to sales of
certain drug products that utilized Enzon’s proprietary technology.
In recent years, we have had no clinical operations and limited
corporate operations. We have a series of licensing agreements in
the drug Vicineum, which, if approved, will potentially generate
milestone and royalty payments to us in the future. We cannot
assure you that we will earn material future royalties or
milestones.
Prior to 2017, we received royalty revenues from sales of
PegIntron, which is marketed by Merck & Co., Inc.
(“Merck”). In 2019 and 2020 net royalties from PegIntron have not
been significant. There is a dispute with Merck regarding royalties
(see Note 12 to our Condensed Consolidated Financial Statements).
We have certain royalty agreements regarding SC Oncaspar and
certain other drugs.
Since 2013, we had planned, to distribute excess cash to
stockholders from our royalty revenues. In 2016, our Board of
Directors adopted a Plan of Liquidation and Dissolution (the
“Plan”). Following each subsequent periodic assessment, our Board
of Directors postponed seeking shareholder approval for the Plan,
and on November 9, 2020, our Board of Directors withdrew and
terminated the Plan as the result of its successful rights offering
(see above and Notes 11 and 15 to our Condensed Consolidated
Financial Statements).
We maintain our principal executive offices at 20 Commerce Drive,
Suite 135, Cranford, New Jersey, 07016.
On August 4, 2020, our Board of Directors appointed
Mr. Jordan Bleznick and Mr. Randolph C. Read as directors
to the Board, effective August 4, 2020, to fill the vacancies
created by the resignations of Mr. Jonathan Christodoro and
Dr. Odysseas Kostas as of the same date. Messrs. Bleznick
and Read will each serve until the next annual meeting of our
stockholders and until such director’s successor is elected and
qualified, subject to such director’s earlier death, resignation,
disqualification or removal.
Mr. Bleznick was appointed by our Board of Directors after
discussions with Carl C. Icahn, one of the Company’s largest
stockholders, and after consideration by the Governance and
Nominating Committee. There are no arrangements or understandings
between Mr. Bleznick and any other persons pursuant to which
Mr. Bleznick was selected as a director. Mr. Read was
appointed by the Board after consideration by the Governance and
Nominating Committee. There are no arrangements or understandings
between Mr. Read and any other persons pursuant to which
Mr. Read was selected as a director.
Following the new Board of Directors’ appointments, Mr. Read
was elected as Chairman of the Board. The Board of Directors also
appointed Messrs. Bleznick and Read to its Finance and Audit
Committee, replacing Mr. Christodoro and Dr. Kostas,
having determined that each meets the requirements for financial
literacy and independence that the Board of Directors has used to
select members of that committee. Jennifer McNealey, who also
serves as a director on the Board of Directors, is the other member
of the Finance and Audit Committee. Messrs. Bleznick and Read
were each determined by the Board of Directors to qualify as an
“audit committee financial expert,” as defined in Item
407(d)(5) of Regulation S-K. Mr. Read was elected as the
Chairman of the Finance and Audit Committee. In November 2020, Mr.
Bleznick resigned from the Finance and Audit Committee, but
maintains his position on the Board of Directors.
Section 382 Rights Plan
On August 14, 2020, our Board of Directors adopted a
Section 382 rights plan and declared a dividend distribution
of one right for each outstanding share of the Company’s common
stock to stockholders of record at the close of business on
August 24, 2020. Accordingly, holders of the Company’s common
stock own one preferred stock purchase right for each share of
common stock owned by such holder. The rights are not immediately
exercisable and will become exercisable only upon the occurrence of
certain events as set forth in the Section 382 rights plan. If
the rights become exercisable, each right would initially represent
the right to purchase from us one one-thousandth of a share of our
Series A-1 Junior Participating Preferred Stock, par value
$0.01 per share, for a purchase price of $1.20 per right. If
issued, each fractional share of Series A-1 Junior
Participating Preferred Stock would give the stockholder
approximately the same dividend, voting and liquidation rights as
does one share of the Company’s common stock. However, prior to
exercise, a right does not give its holder any rights as a
stockholder of the Company, including any dividend, voting or
liquidation rights. The rights will expire on the earliest of
(i) the close of business on August 13, 2021 (unless that
date is advanced or extended by the Board of Directors),
(ii) the time at which the rights are redeemed or exchanged
under the Section 382 rights plan, (iii) the close of
business on the day of repeal of Section 382 or any successor
statute or (iv) the close of business on the first day of a
taxable year of the Company to which our Board of Directors
determines that no net operating loss carryforward may be carried
forward.
The Rights Offering
On September 1, 2020, the our Board of Directors approved a
Rights Offering, by which we distributed, at no charge to all
holders of our common stock on September 23, 2020 (the “Record
Date”) transferable subscription rights to purchase Units at a
subscription price per Unit of $1,090. In the Rights Offering each
stockholder received one subscription right for every share of
common stock owned at 5:00 p.m., New York City time, on the Record
Date. For every 1,105 subscription rights held, a stockholder was
entitled to purchase one Unit at the subscription price. Each Unit
consisted of newly designated Series C preferred stock, par
value $0.01 per share, and 750 shares of the Company’s common
stock. It is our intention to use the approximately $43 million of
net proceeds from the Rights Offering to position us as a public
company acquisition vehicle, where we can become an acquisition
platform and more fully utilize our net operating loss
carryforwards and enhance stockholder value. We do not, however,
have any current plans, arrangements or understandings with respect
to any acquisitions or investment and we are, currently, not
involved in any negotiations with respect to any such
transactions.
On an annual basis, the Company’s Board of Directors may, at its
sole discretion, cause a dividend with respect to the Series C
Preferred Stock to be paid in cash to the holders in an amount
equal to 3% of the liquidation preference as in effect at such time
(initially $1,000 per share). If the dividend is not so paid in
cash, the liquidation preference will be adjusted and increased
annually by an amount equal to 5% of the liquidation preference per
share as in effect at such time, that is not paid in cash to the
holders on such date. Holders of Series C preferred stock do
not have any voting rights and the Series C preferred stock is
not convertible into shares of our common stock. The initial
liquidation value of the Series C preferred stock will be
$1,000 per share. On or after November 1, 2022, we may redeem
the Series C preferred stock at any time, in whole or in part,
based on the liquidation preference per share as in effect at such
time. Holders of Series C preferred stock have the right to
demand that we redeem their shares in the event that we undergo a
change of control.
On September 1, 2020, we entered into an Investment Agreement
with Icahn Capital LP in connection with the Rights Offering. Icahn
Capital LP, together with its affiliates, owned approximately 15%
of our outstanding shares of common stock and is one of our largest
stockholders.
Subject to the terms and conditions of the Investment
Agreement, Icahn Capital LP agreed to subscribe for its
pro-rata share of the Rights Offering and to purchase all units
that remain unsubscribed for at the expiration of the Rights
Offering to the extent that other holders elected not to exercise
all of their respective subscription rights. No fees were paid by
us to Icahn Capital LP in consideration of such investment
commitment. In connection with the execution of the Investment
Agreement, the parties agreed to terminate the Standstill
Agreement, dated December 18, 2016, by and between
us, Icahn Capital LP and the other affiliated parties
identified therein, so that it shall be of no further force or
effect; and waive the applicability of Section 203 of the
Delaware General Corporation Law of the State of Delaware to Icahn
Capital LP and its affiliates. In addition, we agreed to use our
best efforts to register for resale all of the shares of our common
stock then held by Icahn Capital LP and its affiliates following
the closing of the Rights Offering.
The subscription period for the Rights Offering ended on
October 9, 2020. On October 14, 2020, we reported that
stockholders exercised subscription rights to purchase 6,694 units.
Pursuant to the Investment Agreement, Icahn Capital LP
subscribed for 5,971 of such units (its pro-rata share of the
Rights Offering). In addition, pursuant to its investment
commitment, Icahn Capital LP purchased all 33,306 units that
remained unsubscribed for at the expiration of the Rights Offering.
As a result of such purchases Ichan Capital LP and its affiliates
own 48.6% of our common stock.
As a result of the sale of all 40,000 units available for purchase
in the Rights Offering, the Company has 40,000 shares of
Series C preferred stock outstanding and an aggregate of
74,214,603 shares of common stock outstanding following the Rights
Offering and realized gross proceeds of $43.6 million.
We believe that the completion of the Rights Offering will not
limit the use of our net operating loss carryforwards due to any
Section 382 limitations.
Plan of Liquidation and Dissolution
On February 4, 2016, our Board of Directors adopted the Plan
of Liquidation and Dissolution (the “Plan”), 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. Following each subsequent periodic assessment, our Board
of Directors postponed seeking stockholder approval of the Plan. On
November 9, 2020, our Board of Directors withdrew and
terminated the Plan of Liquidation and Dissolution as a result of
the completion of the Rights Offering (see Note 15 to our Condensed
Consolidated Financial Statements).
Throughout this Management’s Discussion and Analysis, the primary
focus is on our results of operations, cash flows and financial
condition. The percentage changes throughout the following
discussion are based on amounts stated in thousands of dollars.
Results of Operations
Revenues:
Royalties (in thousands of dollars):
| |
|
Three Months Ended
September 30, |
|
|
Nine Months Ended
September 30, |
|
| |
|
2020 |
|
|
%
Change |
|
|
2019 |
|
|
2020 |
|
|
%
Change |
|
|
2019 |
|
|
Royalty revenues |
|
$ |
8 |
|
|
|
30 |
% |
|
$ |
2 |
|
|
$ |
18 |
|
|
|
89 |
% |
|
$ |
158 |
|
Royalty revenues from sales of PegIntron by Merck amounted to
approximately $8,000 for the three months ended September 30,
2020, as compared to $2,000 during the corresponding period in the
prior year. These PegIntron royalties accounted for 100% and 100%
of the Company’s total royalty revenues for the three months ended
September 30, 2020 and 2019, respectively, and approximately
100% and 100% (approximately $91,000, inclusive of downward revenue
adjustment of approximately $51,000, related to the amounts of
returns and rebates exceeding the amounts of royalties earned in
the first quarter of 2019) of the Company’s total royalty revenues
for the nine-month periods ended September 30, 2020 and 2019,
respectively. The effects of such downward revenue adjustments were
recorded as decreases of royalty revenues as discussed in Note 1 to
the Condensed Consolidated Financial Statements. Royalty revenues
from Merck have been declining sharply. There are multiple oral
drug therapies, both available and in development, that have been
effective for treatment of hepatitis C that do not require
interferon. As a result, it is likely that sales of
PegIntron-related products will continue their declining trend and
we expect to receive little or no future royalties from Merck.
Our right to receive royalties from sales of PegIntron
expired in the U.S. in 2016, expired in Europe in 2018 and expired
in Malaysia on June 30, 2020, and are expiring in Japan in
2021 and Chile in 2024.
Merck has not yet reported royalty revenues earned by us for
product sales and/or recoupments for returns and rebates for the
quarter ended September 30, 2020.
Royalty revenues for the nine months ended September 30, 2019,
include a one-time, non-refundable, payment of approximately
$65,000 from Novartis Pharma AG in payment of a worldwide, royalty
free non-exclusive license to certain Canadian patents. There was
no such payment during the current year’s comparable period.
Operating Expenses:
General and Administrative (in thousands of
dollars):
| |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| |
|
2020 |
|
|
%
Change |
|
|
2019 |
|
|
2020 |
|
|
%
Change |
|
|
2019 |
|
|
General and administrative |
|
$ |
415 |
|
|
|
27 |
% |
|
$ |
327 |
|
|
$ |
901 |
|
|
|
3 |
% |
|
$ |
873 |
|
General and administrative expenses increased by approximately
$28,000, or 3%, to $901,000 for the nine months ended
September 30, 2020 from $873,000 for the first nine months of
2019. The increase in expense is substantially attributable to the
increase in legal fees, significantly in connection with the
Section 382 Rights Plan, partially offset by the decrease in
accounting and filing fees.
General and administrative expenses increased by approximately
$88,000, or 27%, to $415,000 for the three months ended
September 30, 2020 from $327,000 for the third quarter of
2019. The increase in expense is substantially attributable to the
increase in legal fees and consulting fees, significantly in
connection with the Section 382 Rights Plan.
Tax Expense:
We incurred a tax expense of approximately $2,000 in the first nine
months of 2020 and $2,000 during the prior comparable period to
reflect New Jersey state minimum taxes.
Liquidity and Capital Resources
Our current source of liquidity is our existing cash on hand, which
includes the approximately $43 million of net proceeds from our
Rights Offering (see Note 15 to our Condensed Consolidated
Financial Statements). 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 will be sufficient to fund our operations, at least,
through October 2021. Our future royalty revenues are expected
to be de minimis over the next several years and there can
be no assurance that we will receive any royalty or other
revenues.
Cash was $5.3 million as of September 30, 2020, as compared to
$5.4 million as of December 31, 2019. The decrease of
approximately $0.1 million was primarily attributable to our
nine-month net loss of $0.9 million and $0.3 million of payments
for deferred stock offering expenses, offset by $1.0 million net
effect of cash provided by operating activities resulting from the
collection of an approximately $1.0 million refundable tax credits
receivable.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities (SPEs), which
would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually limited
purposes. As of September 30, 2020, we were not involved in
any SPE 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
United States (“U.S. GAAP”). All applicable U.S. GAAP accounting
standards effective as of September 30, 2020 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.
Deferred Stock Offering Expenses
We classify amounts related to the Rights Offering (see Note 15 to
the Condensed Consolidated Financial Statement.) not closed as of
the balance sheet date as Deferred Stock Offering Expenses. Such
costs will be reclassified as an offset to Additional
Paid-in-Capital upon completion of the Rights Offering.
Revenues
Royalties under our license agreements with third-parties and
pursuant to the sale of our former specialty pharmaceutical
business are recognized when reasonably determinable and earned
through the sale of the product by the third-party and collection
is reasonably assured. Notification from the third-party licensee
of the royalties earned under the license agreement is the basis
for royalty revenue recognition. This information generally is
received from the licensees in the quarter subsequent to the period
in which the sales occur.
Contingent payments due under the asset purchase agreement for the
sale of our former specialty pharmaceutical business are recognized
as revenue when the milestone has been achieved, collection is
assured, such payments are non-refundable and no further effort is
required on the part of the Company or the other party to complete
the earning process.
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 September 30, 2020, 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. Although there can be no
certainly of such, if our acquisition strategy is successful and
future profitability is projected, the valuation allowance will be
reduced, accordingly. 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.
Forward-Looking Information and Factors That May Affect
Future Results
This Quarterly Report on Form 10-Q contains forward-looking
statements within the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. All statements contained
in the Quarterly Report on Form 10-Q, other than statements
that are purely historical, are forward-looking statements.
Forward-looking statements can be identified by the use of
forward-looking terminology such as the words “believes,”
“expects,” “may,” “will,” “should,” “potential,” “anticipates,”
“plans” or “intends” or the negative thereof, or other variations
thereof, or comparable terminology, or by discussions of strategy.
Forward-looking statements are based upon management’s present
expectations, objectives, anticipations, plans, hopes, beliefs,
intentions or strategies regarding the future and are subject to
known and unknown risks and uncertainties that could cause actual
results, events or developments to be materially different from
those indicated in such forward-looking statements, including, but
not limited to, the following risks and uncertainties:
| |
· |
We may be unsuccessful in using the net proceeds of the Rights
Offering to position the Company as a public company acquisition
vehicle and realizing the expected benefits of the Rights
Offering. There can be no assurance we will be
successful in our current strategy and if we do not utilize the
proceeds in connection with an acquisition, our Board of Directors
will have considerable discretion in the use of such proceeds,
which could vary substantially from their current intended
use. The failure by the Board and the Company to apply these
proceeds effectively could have a material and adverse effect on
our business, financial condition and results of operations of the
Company.
|
| |
· |
Until 2017, in recent years, we
derived most of our royalty revenues from continued sales of
PegIntron, which have been in sharp decline. In addition, our right
to receive royalties on U.S. and European sales of PegIntron
expired in 2016 and 2018, respectively, which has negatively
impacted our royalty revenues. |
| |
· |
We expect to
continue to incur losses until such time as our acquisition
strategy becomes successful, There can be no assurance that
profitability can be attained. |
| |
· |
Our rights to
receive royalties on sales of PegIntron and sales of other drug
products have expired in various jurisdictions and will, by 2024,
expire world-wide. We currently do not anticipate any significant
income until such time as our acquisition strategy becomes
successful and we become profitable. The can be no assurance as to
the success of our acquisition strategy or that profitability will
be attained. |
| |
· |
We expect that we will not realize
our deferred income tax assets until such time as our acquisition
strategy becomes successful and we become profitable and generate
taxable income. There can be no assurance as to the success of our
acquisition strategy or that profitability will be attained or that
we will generate taxable income. |
| |
· |
The unprecedented actions taken
globally to control the spread of COVID-19, as well as the
uncertain timing for an effective treatment or vaccine for the
virus, may materially and adversely affect our future right to
receive licensing fees, milestone payments and royalties on product
candidates that are being developed by third parties. |
| |
· |
We have
reallocated all employment responsibilities and outsourced all
corporate functions, which makes us more dependent on third parties
to perform these corporate functions. |
| |
· |
We may be
subject to a variety of types of product liability or other claims
based on allegations that the use of our product candidates by
participants in our previously conducted clinical trials has
resulted in adverse effects, and our insurance may not cover all
product liability or other claims. |
| |
· |
Our revenues
largely depend on proprietary rights, which may offer only limited
protection against the development of competing products. |
| |
· |
We are party
to license agreements whereby we may receive royalties and or
milestone payments from products subject to regulatory
approval. |
| |
· |
The price of
our common stock has been, and may continue to be, volatile. |
| |
· |
Our common
stock is quoted on the OTCQX market of the OTC Markets
Group, Inc., which has a very limited trading market and,
therefore, market liquidity for our common stock is low and our
stockholders’ ability to sell their shares of our common stock may
be limited.
|
| |
· |
The
declaration of dividends on our common stock is within the
discretion of our Board of Directors, subject to any applicable
limitations under Delaware corporate law and the terms of our
outstanding Series C preferred stock. Our ability to pay
dividends in the future depends on, among other things, our future
revenues, which are expected to be minimal, if any, over the next
several years, except to the extent that our acquisition strategy
is successful, of which there can be no assurance, as well as our
ability to manage expenses, including costs relating to our ongoing
operations. |
| |
· |
Anti-takeover
provisions in our charter documents and under Delaware corporate
law as well as our Section 382 rights plan may make it more
difficult to acquire us, even though such acquisitions may be
beneficial to our stockholders. |
| |
· |
The issuance of preferred stock
may adversely affect rights of our common stockholders. |
A more detailed discussion of these risks and uncertainties and
other factors that could affect results is contained in our filings
with the U.S. Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended
December 31, 2019. These risks and uncertainties and other
factors 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 Quarterly Report on Form 10-Q is as of the date of this
report, unless otherwise indicated, and we undertake no duty to
update this information.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
As a smaller reporting company, we are not required to provide
information required by this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the direction of our Chief Executive Officer
and Chief 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
September 30, 2020. 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 Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosures. Our Chief Executive
Officer and Chief Financial Officer concluded that, as of
September 30, 2020, our disclosure controls and procedures
were effective.
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
September 30, 2020 that have materially affected, or are
reasonably likely to materially affect our internal control over
financial reporting.
Part II – OTHER INFORMATION
Item 1A. Risk Factors.
There are no material changes from the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 filed on February 19, 2020
and as otherwise subsequently disclosed in our interim quarterly
reports on Form 10-Q..
Item 5. Other Information
As a result of the completion of the Company’s Rights Offering, the
Company withdrew and terminated the Plan of Liquidation and
Dissolution.
Item 6. Exhibits.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number |
|
Description |
|
Reference
No. |
| 3.1 |
|
Certificate of Elimination of
Series A Junior Participating Preferred Stock of Enzon
Pharmaceuticals, Inc., filed with the Secretary of State of
the State of Delaware on August 14, 2020. |
|
(1) |
| 3.2 |
|
Certificate of Designation of
Series A-1 Junior Participating Preferred Stock of Enzon
Pharmaceuticals, Inc., filed with the Secretary of State of
the State of Delaware on August 14, 2020. |
|
(1) |
| 3.3 |
|
Certificate of Designation of
Series C Non-Convertible Redeemable Preferred Stock of Enzon
Pharmaceuticals, Inc., filed with the Secretary of State of
the State of Delaware on September 21, 2020. |
|
(3) |
| 4.1 |
|
Section 382 Rights Agreement,
dated as of August 14, 2020, by and between Enzon
Pharmaceuticals, Inc. and Continental Stock
Transfer & Trust Company, which includes the Form of
Certificate of Designation as Exhibit A, Form of Rights
Certificate as Exhibit B and the Form of Summary of
Rights as Exhibit C . |
|
(1) |
| 10.1 |
|
Investment Agreement, dated as of
September 1, 2020, by and between Enzon
Pharmaceuticals, Inc. and Icahn Capital LP. |
|
(2) |
| 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* |
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| 101 |
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The following materials from Enzon
Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2020, formatted in XBRL
(Extensible Business Reporting Language): (i) Condensed
Consolidated Balance Sheets, (ii) Condensed Consolidated
Statements of Operations, (iii) Condensed Consolidated
Statements of Stockholders’ Equity (iv) Condensed Consolidated
Statements of Cash Flows, and (v) Notes to Condensed
Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements 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.
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ENZON
PHARMACEUTICALS, INC. |
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(Registrant) |
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| Dated: November 9, 2020 |
/s/ Andrew Rackear |
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Andrew Rackear |
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Chief Executive Officer and Secretary |
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(Principal Executive Officer) |
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| Dated: November 9, 2020 |
/s/ Richard L.
Feinstein |
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Richard L. Feinstein |
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Vice President-Finance and Chief Financial Officer |
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(Principal Financial Officer) |
