SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A3
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended DECEMBER 31, 1995 Commission File No. 0-12957
ENZON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2372868
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 KINGSBRIDGE ROAD, PISCATAWAY, NEW JERSEY 08854
(Address of principal executive offices) (Zip Code)
(908) 980-4500
(Registrant's telephone number, including area code:)
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
The number of shares of common stock, $.01 par value, outstanding as of
February 7, 1996 was 27,428,946 shares.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 1995 and June 30, 1995
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30, December 31, June 30,
1995 1995 1995 1995
(unaudited) * (unaudited) *
Current assets: Current liabilities:
Cash and cash $5,309,045 $8,102,989 Accounts payable $2,483,176 $1,561,968
equivalents 2,775,147 2,362,277 Accrued expenses 3,414,892 4,045,302
Accounts receivable 893,590 792,453 Other current liabilities due to Sanofi - 1,312,829
Inventories 282,160 185,226 Winthrop
Other current assets
Total current liabilities 5,898,068 6,920,099
Total current assets 9,259,942 11,442,945 Accrued rent 1,001,350 1,006,508
Royalty advance - RPR 2,747,986 2,955,841
Other liabilities 2,937 4,076
3,752,273 3,966,425
Property and equipment 15,806,365 15,758,058 Commitments and contingencies
Less accumulated
depreciation 10,948,825 9,968,024 Stockholders' equity:
and amortization
4,857,540 5,790,034 Preferred stock-$.01 par value, authorized
3,000,000 shares; issued and outstanding
Other assets: 109,000 shares at December 31, 1995 and June
Investments 78,616 78,616 and June 30, 1995 (liquidation
Other assets, net 55,952 46,627 preference $25 per share aggregating
Patents, net 1,745,650 1,825,820 aggregating $2,725,000 at December 31, 1995) 1,090 1,090
1,880,218 1,951,063 Common stock-$.01 par value, authorized
40,000,000 shares; issued and outstanding
26,328,874 shares at December 31, 1995
1995 and June 30, 1995 263.289 263,289
Additional paid-in capital 111,740,179 111,494,180
Accumulated deficit (105,657,199)(103,461,041)
Total stockholders' equity 6,347,359 8,297,518
Total assets $15,997,700 $19,184,042 Total liabilities and stockholders' equity $15,997,700 $19,184,042
*Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended December 31, 1995 and 1994
(Unaudited)
Three months ended Six months ended
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
Revenues
Sales $2,541,976 $2,102,147 $5,351,024 $4,159,324
Contract revenue 788,236 100,000 904,736 1,900,000
Total revenues 3,330,212 2,202,147 6,255,760 6,059,324
Costs and expenses
Cost of sales 1,223,876 436,667 2,188,577 1,387,226
Research and development expenses 2,390,822 3,402,126 5,081,470 6,758,350
Selling, general and administrative 1,404,350 1,872,380 2,676,320 3,819,717
expenses
Total costs and expenses 5,019,048 5,711,173 9,946,367 11,965,293
Operating loss (1,688,836) (3,509,026) (3,690,607) (5,905,969)
Other income (expense)
Interest and dividend income 81,734 42,999 184,079 88,745
Interest expense (4,263) (818) (10,952) (3,588)
Other 1,318,379 39,238 1,321,322 685,584
1,395,850 81,419 1,494,449 770,741
Net loss ($292,986) ($2,196,158) ($2,196,158) ($5,135,228)
Net loss per common share ($0.01) $(0.14) ($0.08) ($0.21)
Weighted average number of common
shares outstanding during the period 26,328,874 25,156,485 26,328,874 24,940,527
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1995 and 1994
(Unaudited)
Six months ended
December 31, December 31,
1995 1994
Cash flows from operating activities:
Net loss ($2,196,158) ($5,135,228)
Adjustment for decrease in liability recognized
pursuant to Sanofi Winthrop Agreement (1,312,829) -
Adjustment for depreciation and amortization 1,060,971 1,314,897 -31,535
Compensation expense for issuance of stock options - 31,535
Reserve for shutdown of Enzon Labs Inc. - (75,601)
Gain on retirement of equipment - (37,968)
(Decrease) increase in accrued rent (5,158) 98,650
Decrease in royalty advance - RPR (207,855) -
Changes in assets and liabilities (83,597) (1,285,428)
Net cash used in operating activities (2,744,626) (5,089,143)
Cash flows from investing activities:
Capital expenditures (48,307) (211,321)
Proceeds from sale of equipment - 830,225
Proceeds from cash surrender value of officers'
life insurance - 373,186
Net cash (used in) provided by investing activities (48,307) 992,090
Cash flows from financing activities:
Proceeds from issuance of common stock - 1,733,042
Principal payments of obligations under capital leases (1,011) (12,712)
Net cash (used in) provided by financing activities (1,011) 1,720,330
Net decrease in cash and cash equivalents (2,793,944) (2,376,723)
Cash and cash equivalents at beginning of period 8,102,989 5,731,461
Cash and cash equivalents at end of period $5,309,045 $3,354,738
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements have been
prepared from the books and records of Enzon, Inc. and subsidiaries in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) considered necessary for
a fair presentation have been included. Interim results are not necessarily
indicative of the results that may be expected for the year.
(2) NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant period,
adjusted for cumulative undeclared preferred stock dividends of $109,000 for
the six months ended December 31, 1995 and 1994, and $55,000 for the three
months ended December 31, 1995 and 1994, divided by the weighted average number
of shares issued and outstanding during the period. Stock options, warrants
and common stock issuable upon conversion of the preferred stock are not
reflected as their effect would be antidilutive for both primary and fully
diluted earnings per share computations. The total number of shares issued to
former shareholders of Enzon Labs Inc. (formerly known as Genex Corporation),
which was acquired on October 31, 1991, have been included in the weighted
average number of outstanding shares, as if all shares had been issued on
October 31, 1991, the date of acquisition.
(3) INVENTORIES
The composition of inventories at December 31, 1995 and June 30, 1995 is
as follows:
December 31, June 30,
1995 1995
Raw materials $467,000 $398,000
Work in process 299,000 134,000
Finished goods 128,000 260,000
$894,000 $792,000
(4) CASH FLOW INFORMATION
The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash payments for
interest were approximately $11,000 and $1,000 for the six months ended
December 31, 1995 and 1994, respectively. There were no income tax payments
made for the six months ended December 31, 1995 and 1994. As part of the
commission due to the real estate broker in connection with the termination of
the lease at 40 Kingsbridge Road, the Company issued 150,000 five-year warrants
to purchase the Company's Common Stock at $2.50 per share during the six months
ended December 31, 1995. This transaction is a non-cash financing activity.
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements, Continued
(Unaudited)
(5) NON-QUALIFIED STOCK OPTION PLAN
During the six months ended December 31, 1995, the Company issued 550,000
stock options at an average exercise price of $3.42 under the Company's Non-
Qualified Stock Option Plan (the "Plan"), of which 180,000 were granted to
executive officers of the Company. None of the options granted during the
period are exercisable as of December 31, 1995. All options were granted with
exercise prices that equalled or exceeded the fair market value of the
underlying stock on the date of grant.
On December 5, 1995, the stockholders voted to amend the Plan to increase
the number of shares reserved for issuance to 6,200,000.
(6) RESTRUCTURING EXPENSE
During the quarter ended March 31, 1995, the Company recorded a
restructuring charge related to a workforce reduction and the termination of
one of its facility leases. As of June 30, 1995, approximately $758,000 of the
restructuring charge was unpaid and recorded in accrued expenses in the
Consolidated Condensed Balance Sheet. During the six months ended December 31,
1995, the Company paid the remaining $758,000, the majority of which
represented fees due the Company's real estate broker in connection with the
termination of the lease.
(7) OTHER INCOME
During the quarter ended December 31, 1995, the Company recognized as
other income approximately $1,313,000, representing the unused portion of an
advance received under a development and license agreement with Sanofi
Winthrop, Inc. ("Sanofi"). During October 1995, the Company learned that
Sanofi intended to cease development of PEG-SOD (Dismutec (trademark)) due to
the product's failure to show a statistically significant difference between
the treatment group and the control group in a pivotal Phase III trial. Due,
in part, to this product failure, the Company believes it has no further
obligations under its agreement with Sanofi with respect to the $1,313,000
advance and therefore, the Company has reversed the amount due Sanofi
previously recorded as a current liability.
(8) SUBSEQUENT EVENT
On January 31, 1996, the Company completed a private placement (the
"Private Placement") of Common Stock and Series B Convertible Preferred Stock
("Convertible Preferred Stock"), resulting in gross proceeds of $7,000,000,
with an institutional investor pursuant to Regulation D of the Securities Act
of 1933, as amended. The Company issued 1,094,890 shares of Common Stock for
$3,000,000, raising the outstanding common shares to 27,423,764 and 40,000
shares of Convertible Preferred Stock for $4,000,000. The Company also issued
five-year warrants (the "Warrants") to purchase 638,686 shares of Common Stock
at $4.11 per share. The Convertible Preferred Stock is convertible commencing
70 days after issuance. The conversion price for the Convertible Preferred
Stock is 80% of the market price for the five consecutive trading days ending
one trading day prior to the date of the conversion notice and the stated value
is $100 per share. The Convertible Preferred Stock will not pay a dividend.
In connection with the Private Placement, the Company agreed to register on a
Registration Statement on Form S-3 the Common Stock issued, the shares of
Common Stock underlying the Convertible Preferred Stock, the shares of Common
Stock underlying the Warrants and certain shares of Common Stock issuable in
the event the Company does not comply with certain of its obligations under the
agreements. The issuance of the Private Placement stock and warrants would not
have changed the net loss per common share reported for the three and six
months ended December 31, 1995.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 VS. THREE MONTHS ENDED DECEMBER 31, 1994
REVENUES. Revenues for the three months ended December 31, 1995 increased by
51% to $3,330,000 as compared to $2,202,000 for the same period in 1994. The
components of revenues are sales and contract revenues. Sales increased by 21%
to $2,542,000 for the three months ended December 31, 1995 as compared to
$2,102,000 for the same period in the prior year, due to increased revenues
from ONCASPAR (registered trademark), which is marketed in the U.S. by Rhone-
Poulenc Rorer Pharmaceuticals, Inc. ("RPR"). ADAGEN (registered trademark)
sales for the three months ended December 31, 1995 and 1994 were $2,039,000 and
$2,094,000, respectively. Contract revenue for the three months ended December
31, 1995 increased to $788,000, as compared to $100,000 for the same period in
1994. The increase was principally due to a payment received in connection
with the signing of a worldwide non-exclusive licensing agreement with RPR for
the Company's Single-Chain Antigen-Binding ("SCA" (registered trademark))
protein technology during the three months ended December 31, 1995. During the
three months ended December 31, 1995 and 1994, the Company had export sales of
$491,000 and $549,000, respectively. Sales in Europe were $429,000 and
$466,000 for the three months ended December 31, 1995 and 1994, respectively.
COST OF SALES. Cost of sales, as a percentage of sales, increased to 48% for
the three months ended December 31, 1995 as compared to 21% for the same period
in 1994. The increase was due primarily to a payment in lieu of satisfying the
minimum purchase requirements under the Company's long-term supply agreement
for a raw material used in the production of ONCASPAR and the write-off of
excess inventories of this raw material, as well as an increase in the charge
recorded for the three months ended December 31, 1995 for idle capacity at the
Company's manufacturing facility. While it is possible that the Company may
incur similar losses on its remaining purchase commitments under the Company's
long-term supply agreement, the Company does not consider such losses probable,
nor is the amount of any loss which may be incurred in the future presently
estimatable due to a number of factors, including but not limited to potential
increased demand for ONCASPAR by RPR, expansion into additional markets outside
the U.S. and the possibility that the Company could renegotiate the level of
required purchases. If the Company does not achieve increases in sales of
ONCASPAR beyond present levels or cannot renegotiate its commitment, a loss
would be incurred on the remaining purchase commitment. During the quarter
ended December 31, 1995, the Company utilized approximately 21% of its
manufacturing capacity for the production of its approved products.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended December 31, 1995 decreased by 30% to $2,391,000 from $3,402,000
for the same period in 1994. This decrease was primarily due to (i) reductions
in personnel, principally in the clinical and research administration areas,
and related costs, such as payroll taxes and benefits, (ii) decreased research
facilities and occupancy costs, and (iii) other cost containment measures taken
by the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended December 31, 1995 decreased
by 25% to $1,404,000 from $1,872,000 for the same period in 1994. The decrease
was due to (i) reductions in personnel and related costs, such as payroll taxes
and benefits, (ii) a reduction in facility and occupancy costs, and (iii) other
cost containment measures taken by the Company.
OTHER INCOME/EXPENSE. Other income/expense increased by $1,314,000 to
$1,396,000 for the three months ended December 31, 1995 as compared to $81,000
for the same period last year. The increase was due principally to the
recognition as other income of approximately $1,313,000 representing the unused
portion of an advance received under a development and license agreement with
Sanofi Winthrop, Inc. ("Sanofi"). During October 1995, the Company learned
that Sanofi intended to cease development of PEG-SOD (Dismutec (trademark)) due
to the product's failure to show a statistically significant difference between
the treatment group and the control group in a pivotal Phase III trial. Due,
in part, to this product failure, the Company believes it has no further
obligations under its agreement with Sanofi with respect to the $1,313,000
advance and therefore, the Company has recognized as other income the amount
due Sanofi previously recorded as a current liability.
SIX MONTHS ENDED DECEMBER 31, 1995 VS. SIX MONTHS ENDED DECEMBER 31, 1994
REVENUES. Revenues for the six months ended December 31, 1995 increased by 3%
to $6,256,000 as compared to $6,059,000 for the same period in 1994. The
components of revenues are sales and contract revenues. Sales increased by 29%
to $5,351,000 for the six months ended December 31, 1995 as compared to
$4,159,000 for the same period in the prior year, due to increased ONCASPAR
revenues from RPR and an increase in ADAGEN sales resulting from an increase in
patients receiving ADAGEN. ADAGEN sales for the six months ended December 31,
1995 and 1994 were $4,214,000 and $4,009,000, respectively. Contract revenue
for the six months ended December 31, 1995 decreased by 52% to $905,000, as
compared to $1,900,000 for the same period in 1994. The decrease was
principally due to a payment of $1,800,000 recorded during the six months ended
December 31, 1994 from Bristol-Myers Squibb related to the exercise of its
option under an agreement dated September 1993, to acquire a worldwide non-
exclusive license for all therapeutic indications for the Company's SCA protein
technology. This decrease was offset in part by a worldwide non-exclusive
license for the Company's SCA protein technology signed with RPR in 1995.
During the six months ended December 31, 1995 and 1994, the Company had export
sales of $1,131,000 and $999,000, respectively. Sales in Europe were $983,000
and $871,000 for the six months ended December 31, 1995 and 1994, respectively.
COST OF SALES. Cost of sales, as a percentage of sales, increased to 41% for
the six months ended December 31, 1995 as compared to 33% for the same period
in 1994. The increase was due primarily to a payment in lieu of satisfying the
minimum purchase requirements under the Company's long-term supply agreement
for a raw material used in the production of ONCASPAR and the write-off of
excess inventories of this raw material, as well as an increase in the charge
recorded for the six months ended December 31, 1995 for idle capacity at the
Company's manufacturing facility. This increase was offset in part by a
decrease in cost of sales as a percentage of sales for the Company's product
ADAGEN. ADAGEN's margins improved during the six months ended December 31,
1995, due to the elimination of inefficiencies experienced in the filling
process during the previous year. While it is possible that the Company may
incur similar losses on its remaining purchase commitments under the Company's
long-term supply agreement, the Company does not consider such losses probable,
nor is the amount of any loss which may be incurred in the future presently
estimatable due to a number of factors, including but not limited to potential
increased demand for ONCASPAR by RPR, expansion into additional markets outside
the U.S. and the possibility that the Company could renegotiate the level of
required purchases. If the Company does not achieve increases in sales of
ONCASPAR beyond present levels or cannot renegotiate its commitment, a loss
would be incurred on the remaining purchase commitment.
RESEARCH AND DEVELOPMENT. Research and development expenses for the six months
ended December 31, 1995 decreased by 25% to $5,081,000 from $6,758,000 for the
same period in 1994. This decrease was primarily due to (i) reductions in
personnel, principally in the clinical and research administration areas, and
related costs, such as payroll taxes and benefits, (ii) decreased research
facilities and occupancy costs, and (iii) other cost containment measures taken
by the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended December 31, 1995 decreased by
30% to $2,676,000 from $3,820,000 for the same period in 1994. The decrease
was due to (i) reductions in personnel and related costs, such as payroll taxes
and benefits, (ii) a reduction in facility and occupancy costs, and (iii) other
cost containment measures taken by the Company.
OTHER INCOME/EXPENSE. Other income/expense increased by $724,000 to $1,494,000
for the six months ended December 31, 1995 as compared to $771,000 for the same
period last year. The increase was due principally to the recognition as other
income of approximately $1,313,000 representing the unused portion of an
advance received under a development and license agreement with Sanofi. During
October 1995, the Company learned that Sanofi intended to cease development of
PEG-SOD (Dismutec) due to the product's failure to show a statistically
significant difference between the treatment group and the control group in a
pivotal Phase III trial. Due, in part, to this product failure, the Company
believes it has no further obligations under its agreement with Sanofi with
respect to the $1,313,000 advance and therefore, the Company has recognized as
other income the amount due Sanofi previously recorded as a current liability.
Other income/expense in the prior year principally consisted of a one-time
insurance payment recorded in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Enzon had $5,309,000 in cash and cash equivalents as of December 31,
1995. The Company invests its excess cash in a portfolio of high-grade
marketable securities and United States government-backed securities.
The Company's cash reserves, as of December 31, 1995, decreased by
$2,794,000 from June 30, 1995. The decrease in cash reserves was caused by the
funding of operations.
The Company's exclusive U.S. marketing rights license with RPR for
ONCASPAR provides for a payment of $3,500,000 in advance royalties which was
received in January 1995. Royalties due under the revised agreement will be
offset against a credit of $5,970,000, which represents the royalty advance
plus reimbursement of certain amounts due RPR under the previous agreement and
interest expense, before cash payments will be made under the agreement. The
royalty advance is shown as a long term liability with the corresponding
current portion included in accrued expenses on the consolidated condensed
balance sheets and will be reduced as royalties are recognized under the
agreement.
As of December 31, 1995, 940,808 shares of Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") had been converted
into 3,093,411 shares of Common Stock. Accrued dividends on the converted
Series A Preferred Stock in the aggregate of $1,792,000 were settled by the
issuance of 232,383 shares of Common Stock. The Company does not presently
intend to pay cash dividends on the Series A Preferred Stock. As of December
31, 1995, there were $1,258,000 of accrued and unpaid dividends on the Series A
Preferred Stock. These dividends are payable in cash or Common Stock at the
Company's option and accrue on the outstanding Series A Preferred Stock at the
rate of $218,000 per year.
To date, the Company's sources of cash have been the proceeds from the
sale of its stock through public and private placements, sales of ADAGEN, sales
of ONCASPAR, sales of its products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances.
The Company's current sources of liquidity are its cash, cash equivalents and
interest earned on such cash reserves, sales of ADAGEN, sales of ONCASPAR, the
proceeds of the Company's private placement of Common Stock and Series B
Convertible Preferred Stock described below, sales of its products for research
purposes and license fees. Management believes that its current sources of
liquidity will be sufficient to meet its anticipated cash requirements, based
on current spending levels, for approximately the next two years.
On January 31, 1996, the Company completed a private placement of Common
Stock and Series B Convertible Preferred Stock ("Convertible Preferred Stock"),
resulting in gross proceeds of $7,000,000, with an institutional investor
pursuant to Regulation D of the Securities Act of 1933, as amended. The
Company issued 1,094,890 shares of Common Stock for $3,000,000, and 40,000
shares of Convertible Preferred Stock for $4,000,000. The Company also issued
five-year warrants to purchase 638,686 shares of Common Stock at $4.11 per
share. The Convertible Preferred Stock is convertible commencing 70 days after
issuance. The conversion price for the Convertible Preferred Stock is 80% of
the market price for the five consecutive trading days ending one trading day
prior to the date of the conversion notice and the stated value is $100 per
share. The Convertible Preferred Stock will not pay a dividend.
Upon exhaustion of the Company's current cash reserves, the Company's
continued operations will depend on its ability to realize significant revenues
from the commercial sale of its products, raise additional funds through equity
or debt financing, or obtain significant licensing, technology transfer or
contract research and development fees. There can be no assurance that these
sales, financings or revenue generating activities will be successful.
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.
ENZON, INC.
(Registrant)
Date: May 9, 1996 By:/s/KENNETH J. ZUERBLIS
Kenneth J. Zuerblis
Vice President, Finance and
Chief Financial Officer
