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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 2005
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ENZON PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-12957 22-2372868
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(State or other jurisdiction (Commission File No.) (IRS Identification No.)
of incorporation)
685 Route 202/206, Bridgewater, New Jersey 08807
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 541-8600
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communication pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[_] Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b)
[_] Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On September 1, 2005, Enzon Pharmaceuticals, Inc. ("Enzon" or the "Company")
issued a press release reporting certain financial and other information for the
quarter ended June 30, 2005, the fourth quarter of Enzon's fiscal year ended
June 30, 2005. The press release also included information on the restatement of
the financial statements for the quarter ended September 30, 2003, and an update
on the status of the financial statement restatement process, which the Company
previously reported on Form 8-K on August 16, 2005. A copy of Enzon's press
release dated September 1, 2005 is attached as Exhibit 99.1 to this Current
Report and is incorporated herein by reference.
Item 4.02(a) Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review
Restatement and Non-Reliance
In addition to the financial restatements that we previously reported on August
16, 2005, for the quarter and fiscal year to date periods ended December 31,
2003, March 31, 2004, June 30, 2004, September 30, 2004, December 31, 2004 and
March 31, 2005, on August 31, 2005, in connection with the restatement process,
the management of Enzon concluded that we would also need to amend and restate
our previously issued financial statements and other financial information for
the quarter ended September 30, 2003, and further amend the previously issued
financial statements and other financial information for the quarters ended
December 31, 2003 and March 31, 2004, in each case with respect to our
application of hedge accounting for a Zero Cost Protective Collar arrangement
under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended (SFAS 133). In light
of these restatements and those reported by the Company on August 16, 2005, the
previously issued financial statements and other financial information contained
in our Form 10-Qs and 10-K/A for the quarter and fiscal year to date periods
ended September 30, 2003, December 31, 2003, March 31, 2004, and June 30, 2004
should no longer be relied upon.
This Zero Cost Protective Collar arrangement was entered into in August 2003
with a financial institution to reduce our exposure associated with 1.5 million
shares of NPS Pharmaceuticals, Inc. common stock that we received as part of a
merger termination agreement with NPS. We concluded, after consultation with
KPMG LLP, our independent registered public accounting firm, that we failed to
properly record the time value of the equity collar in our financial statements
for the quarters ended September 30, 2003, December 31, 2003 and March 31, 2004.
The equity collar was, however, properly valued in our financial statements for
the fiscal year ended June 30, 2004. On August 22, 2005, this financial
instrument expired, and we sold our remaining shares of NPS.
While our continuing review is not yet complete, it has progressed sufficiently
to allow us now to announce that we expect to restate and amend our financial
statements for the above periods.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
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99.1 Press Release of Enzon Pharmaceuticals, Inc. dated
September 1, 2005
SIGNATURES
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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 hereunto duly authorized.
Dated: September 1, 2005
By: /s/ Craig A. Tooman
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Craig A. Tooman
Executive Vice President, Finance and
Chief Financial Officer
Exhibit 99.1
Enzon Reports Certain Financial and Other Information for Fourth Quarter of
Fiscal 2005; Fourth Quarter Revenues of $44 Million; Cash Reserves Remain Strong
at $225 Million; Update Provided on Form 10-K Filing and Restatement Process
BRIDGEWATER, N.J.--(BUSINESS WIRE)--Sept. 1, 2005--Enzon
Pharmaceuticals, Inc. (Nasdaq: ENZN) today reported certain financial
and other business highlights for the quarter ended June 30, 2005, the
fourth quarter of Enzon's fiscal year (FY) 2005. As previously
reported in a Form 8-K and press release dated August 16, 2005, Enzon
will release its full fourth quarter financial results for FY 2005 as
soon as practicable after the restatement of certain historical
financial statements for the quarter and fiscal year to date periods
ended on and prior to March 31, 2005. An update on the status of the
financial statement restatement process is also discussed herein.
Financial highlights from the fourth quarter of FY 2005 include:
-- $11.3 million in North American sales of ABELCET. ABELCET
sales were slightly higher than the Company's expectations but
down $5.8 million from the fourth quarter of FY 2004 due to
the previously reported increasingly competitive market
conditions in the intravenous antifungal market.
-- $12.1 million in combined sales of ONCASPAR, ADAGEN, and
DEPOCYT, as compared to $10.2 million in combined sales for
the fourth quarter of FY 2004.
-- $16.4 million in royalties, a 46% increase over the fourth
quarter of FY 2004 primarily due to Schering-Plough's December
2004 launch of PEG-INTRON combination therapy in Japan, and to
a lesser extent the January 2005 launch of MACUGEN(R) in the
U.S.
-- $225.1 million in total cash reserves, which include cash,
cash equivalents, short-term investments, and marketable
securities, as of June 30, 2005, an increase of $38.9 million
from June 30, 2004 primarily due to proceeds from the sale of
an equity-based investment and free cash flow for the year
ended June 30, 2005.
Jeffrey H. Buchalter, Enzon's chairman and chief executive
officer, will be hosting a conference call today, September 1, 2005,
at approximately 10:00 am EDT to provide a brief business update on
the Company's recent activity and other business developments. The
conference dial-in number is 888-276-0006 (domestic) or 651-224-7497
(international) and the replay number is 800-475-6701 (domestic) or
320-365-3844 (international). The conference ID for the replay is
791403. The call will be broadcast live and then via replay for
approximately two weeks. Enzon's conference call will also be webcast
in a "listen only" mode via the Internet at http://www.vcall.com.
Product Sales
Combined product sales for the Company's four internally marketed
products (ABELCET, ADAGEN, DEPOCYT, and ONCASPAR) decreased to $23.4
million for the fourth quarter of FY 2005, as compared to $27.3
million for the fourth quarter of FY 2004. The decrease in product
sales was attributable to a decline in North American sales of the
Company's intravenous antifungal product, ABELCET, due to the
previously reported competitive conditions in the intravenous
antifungal market. For the fourth quarter of FY 2005, ABELCET sales
were $11.3 million as compared to $17.1 million for the fourth quarter
of FY 2004. The decrease in ABELCET sales was partially offset by
increased sales for each of the Company's other three internally
marketed products for the fourth quarter of FY 2005 versus the fourth
quarter of FY 2004.
Sales of ADAGEN, an enzyme replacement therapy used to treat a
type of severe combined immunodeficiency disease, increased to $4.6
million for the fourth quarter of FY 2005, as compared to $4.3 million
for the fourth quarter of FY 2004. Historically, quarterly sales of
ADAGEN experience volatility because of the small number of patients
on therapy.
Sales of ONCASPAR, which is used in combination with other
chemotherapeutics to treat acute lymphoblastic leukemia, increased to
$5.8 million for the fourth quarter of FY 2005, as compared to $4.8
million for the fourth quarter of FY 2004.
Sales of DEPOCYT, which is used for the treatment of lymphomatous
meningitis, increased to $1.7 million for the fourth quarter of FY
2005, as compared to $1.1 million for the fourth quarter of FY 2004.
Royalties for the fourth quarter of FY 2005, increased to $16.4
million, as compared to $11.2 million for the fourth quarter of FY
2004. Royalties are principally comprised of royalties from sales of
PEG-INTRON, which is marketed worldwide by Schering-Plough Corporation
(NYSE: SGP) for the treatment of chronic hepatitis C. The increase in
royalties was primarily driven by higher sales of PEG-INTRON due to
the December 2004 launch of PEG-INTRON combination therapy in Japan,
and to a lesser extent royalties related to sales of MACUGEN. In
January 2005, Eyetech Pharmaceuticals Inc. (Nasdaq: EYET) launched
MACUGEN in the U.S. for the treatment of neovascular (wet) age-related
macular degeneration (AMD), an eye disease associated with aging that
destroys central vision. Under a strategic alliance formed in 2002
between Enzon and Nektar Therapeutics (Nasdaq: NKTR), Nektar provides
Eyetech with PEGylation technology for use in MACUGEN and Enzon
receives a share of Nektar's royalties.
Tax Valuation Charges
Based on an analysis of the continued decline in the Company's
ABELCET revenues as a result of the previously reported competitive
conditions in the intravenous antifungal market, as well as the
potential impact these conditions may have on the Company's future
financial performance, the Company has determined that it is not more
likely than not that it would realize the tax benefits from its
deferred tax assets. Therefore, the Company's financial results for
the fourth quarter and FY ended June 30, 2005 will include a non-cash
adjustment to increase the Company's valuation allowance associated
with its deferred tax assets as of June 30, 2005. This non-cash charge
is currently expected to approximate $80 million.
Enzon periodically assesses the realization of its deferred tax
assets and considers the need to record or adjust its valuation
allowance based on the likelihood that the Company will benefit from
these assets. Realizing a benefit is ultimately dependent on the
Company's ability to generate sufficient future taxable income prior
to the expiration of the tax benefits that are recognized as deferred
tax assets on the Company's balance sheet. Although Enzon has
established a valuation allowance against the carrying value of its
deferred tax assets, the underlying tax benefit remains available to
the Company to offset future taxable income, subject to the timing of
such income and applicable tax laws and regulations.
Cash and Investments
The Company's cash reserves, which include cash, cash equivalents,
short-term investments, and marketable securities, increased to $225.1
million as of June 30, 2005 from $186.2 million as of June 30, 2004.
This increase was primarily due to cash proceeds of $22.5 million
related to the sale of 1.1 million shares of NPS Pharmaceuticals, Inc.
(Nasdaq: NPSP) common stock, which were obtained as part of a June
2003 merger termination agreement with NPS. The remaining increase was
largely attributable to the Company's free cash flow (cash flow from
operations minus capital expenditures) for the year ended June 30,
2005.
Restatement of Consolidated Financial Statements
As reported on August 16, 2005, during the course of the audit of
Enzon's financial statements for the year ended June 30, 2005, the
Company reevaluated its application of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended (SFAS 133), and its use of hedge
accounting for a financial instrument formed in August 2003. The
Company formed this financial instrument to reduce its investment risk
associated with 1.5 million shares of NPS common stock received as
part of a June 2003 merger termination agreement. In conjunction with
its evaluation, the Company determined that certain amounts previously
recorded in other non-operating income and included in its
consolidated statement of operations should have been recorded in
other comprehensive income and included in its consolidated statement
of stockholders' equity. On August 22, 2005, this financial instrument
expired and the Company received cash proceeds of $7.5 million from
the sale of its remaining 375,000 shares of NPS common stock.
In connection with the restatement process, Enzon has been
undertaking a comprehensive review of its previously issued financial
statements. As a result of this review, the Company is making other
accounting adjustments to certain previously reported results in
addition to those reported on August 16, 2005. These adjustments will
include a correction to the valuation of the aforementioned financial
instrument for the quarter and fiscal year to date periods ended
September 30, 2003, December 31, 2003, and March 31, 2004, as reported
in a Form 8-K filed today with the United States Securities and
Exchange Commission.
The adjustments referred to herein will be reflected in Enzon's
restated financial results. The Company believes such adjustments will
not have a material effect on its past, current or future income or
loss from operations, revenues, cash position, cash flows or total
stockholders' equity.
The Company currently plans to issue amended financial reports for
the quarter and fiscal year to date periods ended September 30, 2003,
December 31, 2003, March 31, 2004, June 30, 2004, September 30, 2004,
December 31, 2004, and March 31, 2005 as soon as practicable. The
Company's previously issued financial statements for the
aforementioned periods should no longer be relied upon.
In addition, the Company currently expects to file its annual
report on Form 10-K for the year ended June 30, 2005 on or before the
due date of September 13, 2005; however, in light of the continuing
effort in finalizing and filing the amended financial statements
discussed above, the Company may be unable to do so.
Management's Report on Internal Control over Financial Reporting
In accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404), Enzon's management is currently assessing the
effectiveness of its internal control over financial reporting.
Enzon's annual report on Form 10-K will include a final report from
management on internal control over financial reporting as of June 30,
2005.
While management's assessment has not yet been completed, to date,
three material weaknesses have been identified during the course of
this review. A material weakness is defined as a significant
deficiency or combination of significant deficiencies, that results in
"more than a remote likelihood" that a material misstatement of the
annual or interim financial statements will not be prevented or
detected.
One of the material weaknesses identified pertains to the
restatements of certain previously issued financial statements, as
discussed above, related to Enzon's application of hedge accounting
pursuant to SFAS 133 and its valuation of a financial instrument
associated with the Company's shares of NPS common stock. As discussed
earlier in this release, this financial instrument expired on August
22, 2005.
In addition, the Company identified two material weaknesses within
its revenue recognition process as they pertain to controls over (i)
the calculation of estimated future wholesaler credits or
"chargebacks" for the fourth quarter of fiscal 2005 and (ii) the
recognition of certain royalty revenue and costs related to
third-party agreements. The Company has concluded each of these
instances constitutes a material weakness related to the Company's
financial reporting processes. Currently, Enzon is remediating its
internal control procedures over each of these areas. The revenue
reported herein includes the corrected effect of these items.
To date, exclusive of these instances there are no other material
weaknesses that have been identified by Enzon's management. However,
management's assessment of its internal controls over financial
reporting is ongoing and subject to change.
Pipeline and Other Developments
Today Enzon also announced that it has decided to discontinue its
collaborative research and development program with the National
Institutes of Health (NIH) for the recombinant immunotoxin SS1P. The
Company also announced that it has entered into an agreement with
Nektar to terminate the companies' joint development agreement for up
to three products using Nektar's pulmonary delivery technologies.
Enzon's decision to discontinue these product development
collaborations was based on a strategic cost-benefit analysis and the
Company's belief that it is in its best interest to redirect these
investments to pursue other product development opportunities.
Under Enzon's product development collaboration with Nektar, which
was formed in January 2002, the companies were jointly developing
inhaled leuprolide acetate and evaluating other potential projects
using Nektar's pulmonary technology for development. In conjunction
with the termination, all rights to inhaled leuprolide have been
returned to Nektar.
In January 2002, Enzon and Nektar also entered into a PEG
technology licensing agreement under which Enzon granted Nektar the
right to grant sub-licenses for a portion of Enzon's PEG technology to
third parties. Nektar will continue to have the right to sub-license
the Enzon patents defined in the companies' January 2002 agreement and
Enzon will receive a royalty or a share of Nektar's profits for any
products that utilize its patented PEG technology. Enzon retains all
rights to use and/or sub-license all of its PEG technology for its own
proprietary products and/or those it may develop with
co-commercialization partners. Since 2002, Enzon has continued to
broaden its intellectual property estate by filing additional PEG
patents that are exclusive to Enzon, including a number that pertain
to the Company's next-generation releasable PEG linker platform, which
utilizes proprietary linker chemistries that can be designed to
release PEG from the parent molecule over time. As a result of the
terminations, Enzon has no further financial obligation to NIH or
Nektar with respect to these collaborations.
About Enzon
Enzon Pharmaceuticals, Inc. is a biopharmaceutical company
dedicated to the development and commercialization of therapeutics to
treat life-threatening diseases. The Company has developed or acquired
a number of marketed products, including PEG-INTRON(R), marketed by
Schering-Plough, and ABELCET(R), ONCASPAR(R), ADAGEN(R), and
DEPOCYT(R), marketed in North America by Enzon's specialized sales
force. Enzon's science-driven strategy includes an extensive drug
development program that leverages the Company's macromolecular
engineering technology platforms, including PEG modification and
single-chain antibody (SCA(R)) technologies. Internal research and
development efforts are complemented by strategic transactions that
provide access to additional marketed products and promising clinical
compounds. Further information about Enzon and this press release can
be found on the Company's web site at www.enzon.com.
The results included in this press release are unaudited and
therefore, deemed to be forward-looking statements. The Company is
undergoing an audit of its FY 2005 financial results, and an audit of
its internal controls over financial reporting as required by Section
404 of the Sarbanes-Oxley Act of 2002. These audit procedures are not
yet complete as of the date of this press release. There can be no
assurance that the information as disclosed in this press release will
not change following the completion of the audits. Further, there are
forward-looking statements contained herein that are not based on
historical fact, including without limitation statements containing
the words "believes," "may," "plans," "will," "estimate," "continue,"
"anticipates," "intends," "expects," and similar expressions. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, events
or developments to be materially different from the future results,
events or developments discussed above. Such factors include, but are
not limited to: the possibility that the Company may be unable to meet
its future reporting requirements, which could result in delisting, as
well as those described in Enzon's Form 10-K/A and Forms 10-Q on file
with the SEC. These factors should be considered carefully and readers
are cautioned not to place undue reliance on such forward-looking
statements. All information in this press release is as of September
1, 2005 and the Company undertakes no duty to update this information.
CONTACT: Enzon Pharmaceuticals, Inc.
Craig Tooman, 908-541-8759
or
Susan M. Mesco, 908-541-8777