UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
For the Quarter Ended December 31, 2000 Commission File No. 0-12957
[GRAPHIC OMITTED] 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)
(732) 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, 2001 was 41,725,048 shares.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 2000 and June 30, 2000
December 31, 2000 June 30, 2000
(unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $27,576,525 $31,935,410
Short-term investments 38,440,052 16,986,278
Accounts receivable 5,956,083 5,442,455
Inventories 1,186,683 946,717
Other current assets 2,507,081 2,269,884
----------- -----------
Total current assets 75,666,424 57,580,744
----------- -----------
Property and equipment 12,236,722 12,439,729
Less accumulated depreciation and amortization 10,297,534 10,650,859
----------- -----------
1,939,188 1,788,870
----------- -----------
Other assets:
Investments 56,187,841 69,557,482
Other assets 561,010 426,731
Patents, net 827,449 898,423
----------- -----------
57,576,300 70,882,636
----------- -----------
Total assets $135,181,912 $130,252,250
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,986,118 2,465,360
Accrued expenses 3,460,896 5,706,811
----------- -----------
Total current liabilities 6,447,014 8,172,171
----------- -----------
Accrued rent 594,676 607,914
Royalty advance-Aventis 694,814 510,001
----------- -----------
1,289,490 1,117,915
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock-$.01 par value, authorized 3,000,000 shares; issued
and outstanding 7,000 shares at December 31, 2000 and
June 30, 2000 (liquidation preference aggregating $326,000 at
at December 31, 2000, and $319,000 at June 30, 2000) 70 70
Common stock-$.01 par value, authorized 60,000,000 shares, issued
and outstanding 41,697,467 shares at December 31, 2000 and
40,838,115 shares at June 30, 2000 416,975 408,381
Additional paid-in capital 254,333,889 250,567,774
Accumulated deficit (127,305,526) (130,014,061)
----------- -----------
Total stockholders' equity 127,445,408 120,962,164
----------- -----------
Total liabilities and stockholders' equity $135,181,912 $130,252,250
============ ============
* Condensed from audited financial statement.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
2
ENZON, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three and Six Months Ended December 31, 2000 and 1999
(Unaudited)
Three months ended Six months ended
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues:
Sales and royalties, net $6,002,201 $3,746,768 $10,949,469 $6,616,903
Contract revenue 16,944 18,304 243,290 61,982
------------ ------------ ------------ ------------
Total revenues 6,019,145 3,765,072 11,192,759 6,678,885
Costs and expenses:
Cost of sales 871,024 792,921 1,872,212 1,971,482
Research and development expenses 2,508,672 1,932,969 5,145,269 3,590,252
Selling, general and administrative expenses 2,513,810 2,810,438 5,588,037 5,136,409
Total costs and expenses 5,893,506 5,536,328 12,605,518 10,698,143
------------ ------------ ------------ ------------
Operating (loss) income 125,639 (1,771,256) (1,412,759) (4,019,258)
------------ ------------ ------------ ------------
Other income (expense)
Interest and dividend income 2,055,488 298,725 4,164,701 599,222
Interest expense - (926) - (3,884)
Other (22) (36,274) 11,869 (36,274)
------------ ------------ ------------ ------------
2,055,466 261,525 4,176,570 559,064
------------ ------------ ------------ ------------
Net income (loss) before taxes 2,181,105 (1,509,731) 2,763,811 (3,460,194)
Provision for income taxes 43,622 - 55,276 -
------------ ------------ ------------ ------------
Net income (loss) after taxes $2,137,483 ($1,509,731) $2,708,535 ($3,460,194)
============ ============ ============ ============
Basic earnings (loss) per common share $0.05 ($0.04) $0.07 ($0.09)
============ ============ ============ ============
Weighted average number of common shares outstanding 41,568,723 37,020,464 41,335,006 36,835,399
============ ============ ============ ============
Diluted earnings (loss) per common share $0.05 ($0.04) $0.06 ($0.09)
============ ============ ============ ============
Weighted average number of common shares outstanding 43,850,319 37,020,464 43,555,087 36,835,399
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
3
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2000 and 1999
(Unaudited)
Six Months Ended
December 31, December 31,
2000 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) $2,708,535 ($3,460,194)
Adjustment for depreciation and amortization 264,286 243,212
Loss on retirement of equipment 22 36,274
Amortization of bond premium/discount (153,261) -
Non-cash expense for issuance of common stock and stock options - 207,770
Decrease in accrued rent (13,238) (13,238)
Increase in royalty advance - Aventis 3,134 5,219
Changes in assets and liabilities (6,181,022) 1,168,597
----------- -----------
Net cash (used in) operating activities (3,371,544) (1,812,360)
----------- -----------
Cash flows from investing activities:
Capital expenditures (343,651) (257,047)
Proceeds from sale of investment 19,600 -
Purchase of investments (19,988,000) -
Maturities of investments 15,550,000 -
----------- -----------
Net cash used in investing activities (4,762,051) (257,047)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 3,774,710 2,199,860
Preferred stock dividends paid - (1,542,404)
----------- -----------
Net cash provided by financing activities 3,774,710 657,456
----------- -----------
Net decrease in cash and cash equivalents (4,358,885) (1,411,951)
Cash and cash equivalents at beginning of period 31,935,410 24,673,636
----------- -----------
Cash and cash equivalents at end of period $27,576,525 $23,261,685
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
4
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
annual 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.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
In accordance with the statement, the Company adopted FAS 133 as of July 1,
2000. The Company has reviewed FAS 133 and its operations relative to FAS 133
and concluded that it does not use derivative instruments. Accordingly the
adoption of FAS 133 did not have an effect on the results of operations or the
financial position of the Company.
In April 2000, the Financial Accounting Standards Board Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25" "FIN 44" was issued. FIN 44 clarifies the
application of APB No. 25 for certain issues. Among other issues, FIN 44
clarifies the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequences of various modifications to the term of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 became effective July 1,
2000, but certain conclusions in this interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44
did not have a significant effect on our financial position or results of
operations.
Contract revenue is recorded as the earnings process is complete.
Non-refundable milestone payments that represent the completion of a separate
earnings process are recognized as revenue when earned.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 in the fourth quarter of fiscal 2001 and does not expect this
SAB to have a material effect on the Company's results of operations or
financial position.
(2) Comprehensive Loss
The net income (loss) of $2,137,000 and ($1,510,000), recorded for the
three months ended December 31, 2000 and 1999 and $2,709,000 and ($3,460,000),
recorded for the six months ended December 31, 2000 and 1999, respectively, is
equal to the comprehensive income (loss) for those periods.
5
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(3) Earnings (loss) Per Common Share
The Company calculates earnings (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share". Basic
earnings (loss) per share is computed by dividing the net income (loss)
available to common shareholders adjusted for cumulative undeclared preferred
stock dividends for the relevant period, by the weighted average number of
shares of common stock issued and outstanding during the periods. For purposes
of calculating diluted earnings per share for the three and six months ended
December 31, 2000 the denominator includes both the weighted average number of
shares of common stock outstanding and the number of dilutive common stock
equivalents. The number of dilutive common stock equivalents includes the effect
of outstanding non-qualified stock options calculated using the treasury stock
method. For the three and six months ended December 31, 1999, the exercise or
conversion of all dilutive potential common shares is not included for purposes
of the diluted loss per share calculation as the effect of their inclusion would
be antidilutive due to the net loss recorded for those periods. As of December
31, 2000, the Company had 4,499,000 dilutive potential common shares outstanding
that could potentially dilute future diluted earnings per share calculations.
The following table reconciles the basic and diluted earnings (loss) per share
calculation:
Three months ended Six months ended
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net income (loss) $2,137,000 ($1,510,000) $2,709,000 ($3,460,000)
Less: Preferred stock dividends 4,000 14,000 7,000 27,000
------------ ------------ ------------ ------------
Net income (loss) available to common
stockholders $2,133,000 ($1,524,000) $2,702,000 ($3,487,000)
------------ ------------ ------------ ------------
Weighted average number of
common shares issued and
outstanding - basic 41,568,723 37,020,464 41,335,006 36,835,399
Effect of dilutive common stock
equivalents:
Conversion of preferred stock 16,000 - 16,000 -
Exercise of non-qualified
stock options 2,265,596 - 2,204,081 -
------------ ------------ ------------ ------------
43,850,319 37,020,464 43,555,087 36,835,399
============ ============ ============ ============
(4) Inventories
The composition of inventories at December 31, 2000 and June 30, 2000 is as
follows:
December 31, June 30,
2000 2000
------------ ------------
Raw materials $391,000 $283,000
Work in process 512,000 504,000
Finished goods 284,000 160,000
------------ ------------
$1,187,000 $947,000
============ ============
6
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(5) Cash Flow Information
Highly liquid securities with original maturities of three months or less
are considered to be cash equivalents. There were no cash payments for interest
for the six months ended December 31, 2000. Cash payments for interest were
approximately $4,000 for the six months ended December 31, 1999. There were no
income tax payments made for the six months ended December 31, 2000 and 1999.
There were no conversions of Series A Preferred Stock during the six months
ended December 31, 2000. During the six months ended December 31, 1999, 80,000
shares of Series A Cumulative Convertible Preferred Stock ("Series A Preferred
Stock") were converted to 181,818 shares of Common Stock. Accrued dividends on
the converted preferred shares of $1,542,000 were settled by a cash payment.
(6) Non-Qualified Stock Option Plan
During the six months ended December 31, 2000, we issued 648,000 stock
options at an average exercise price of $48.24 per share under our Non-Qualified
Stock Option Plan, as amended, of which 200,000 were granted to executive
officers of the Company. None of the options granted during the period are
exercisable as of December 31, 2000. All options were granted with exercise
prices that equaled or exceeded the fair market value of the underlying stock on
the date of grant.
(7) Income Taxes
The Company expects to be profitable for the year ending June 30, 2001, and
accordingly has recognized a tax provision for the three and six months ended
December 31, 2000. The tax provision represents the Company's anticipated
Alternative Minimum Tax liability based on the fiscal 2001 taxable income.
(8) Business Segments
A single management team that reports to the Chief Executive Officer
comprehensively manages our business operations. We do not operate separate
lines of business or separate business entities with respect to any of our
approved products or product candidates. In addition, we do not conduct any
operations outside of the United States. We do not prepare discrete financial
statements with respect to separate product areas. Accordingly, we do not have
separately reportable segments as defined by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
(9) Subsequent Events
During January 2001, our development partner for PEG-INTRON,
Schering-Plough Corporation, received marketing approval from the United States
Food and Drug Administration (FDA) for the use of PEG-INTRON in the treatment of
chronic hepatitis C. We are entitled to a $2 million milestone payment upon this
approval, which represents the final milestone payment under our licensing
agreement with Schering-Plough. Under our licensing agreement with
Schering-Plough, we are also entitled to royalties on worldwide sales of
PEG-INTRON.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information contained herein contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in the "Risk
Factors" section of the Company's Annual Report on Form 10-K/A for the fiscal
year ended June 30, 2000, which is incorporated herein by reference, constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results indicated
in such forward-looking statements. Other factors could also cause actual
results to vary materially from the future results indicated in such
forward-looking statements.
Results of Operations
Three months ended December 31, 2000 vs. Three months ended December 31, 1999
Revenues. Revenues for the three months ended December 31, 2000 were $6,019,000,
as compared to $3,765,000 for the three months ended December 31, 1999. The
components of revenues are sales, which consist of our sales of products and
royalties we earn on the sales of products by others, and contract revenues.
Sales increased by 60% to $6,002,000 for the three months ended December 31,
2000, as compared to $3,747,000 for the prior year period. The increase was due
to increased ONCASPAR revenues and royalties recognized on sales in Europe of
PEG-INTRON. During January 2001, the United States Food and Drug Administration
("FDA") granted our development partner, Schering-Plough Corporation, or
Schering-Plough, marketing authorization for PEG-INTRON for the treatment of
chronic hepatitis C. The increase in ONCASPAR sales was due to the lifting of
FDA distribution and labeling restrictions which were in place during the prior
year. These restrictions were related to a previously disclosed manufacturing
problem and resulted in the prior year's sales being lower than sales in the
current period. During the quarter ended December 31, 2000, the FDA gave final
approval to manufacturing changes which we made to correct these manufacturing
problems, and all previously imposed restrictions have been lifted. This will
allow for the resumption of normal distribution and labeling of this product by
our marketing partner, Aventis Pharmaceuticals (formerly Phone-Poulenc Rorer
Pharmaceuticals, Inc.), which is expected to take place in calendar 2001. We
expect to receive lower revenues from ONCASPAR sales in future quarters when
Aventis resumes distribution of the product and our revenue stream reverts back
to a 27.5% royalty rate on net sales.
Net sales of ADAGEN, which we market, were $3,170,000 for the three months ended
December 31, 2000 as compared to $3,296,000 for the three months ended December
31, 1999. We expect sales of ADAGEN to increase at rates comparable to those
achieved during the last two years as additional patients are treated. We
anticipate royalties on sales of PEG-INTRON to increase in future quarters with
the commencement of U.S. sales and increased international availability of the
product. Schering-Plough is also conducting clinical trials for additional
indications for PEG-INTRON. We cannot assure you that any particular sales
levels of ADAGEN, ONCASPAR or PEG-INTRON will be achieved or maintained.
We had export sales for ADAGEN and ONCASPAR of $1,129,000 for the three months
ended December 31, 2000 and $1,089,000 for the three months ended December 31,
1999. Of these amounts, sales in Europe were $995,000 for the three months ended
December 31, 2000 and $975,000 for the three months ended December 31, 1999.
Cost of Sales. Cost of sales, as a percentage of sales and royalties, improved
to 15% for the three months ended December 31, 2000 as compared to 21% for the
prior year. This was due to a charge taken in the
8
three months ended December 31, 1999 related to the write-off of ONCASPAR
finished goods on hand and in the distribution pipeline. The write-off of
ONCASPAR finished goods was attributable to the manufacturing problems
previously discussed. The improvement in the current quarter was also due to
royalties recognized on Schering-Plough's sales of PEG-INTRON. Schering-Plough
bears all manufacturing costs related to PEG-INTRON.
Research and Development. Research and development expenses increased by 30% to
$2,509,000 for the three months ended December 31, 2000 from $1,933,000 for the
same period last year. The increase was due to increased payroll and related
expenses related to increases in research personnel and increased contracted
services related to Phase I clinical trials and pre-clinical studies for
products under development, including PROTHECAN and PEG-paclitaxel. Research and
development activities are expected to continue to increase significantly as we
move PROTHECAN into Phase II clinical trials, we begin Phase I clinical trials
for Peg-paclitaxel and additional compounds enter clinical trials.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended December 31, 2000 decreased by 11% to
$2,514,000, as compared to $2,810,000 in 1999. The decrease was primarily due to
the timing of expenditures related to legal fees associated with patent filing
and litigation costs.
Other Income/Expenses. Other income/expenses for the three months ended December
31, 2000 increased by $1,793,000 to $2,055,000, as compared to $262,000 for the
prior year. This increase was due to an increase in interest income resulting
from an increase in interest bearing investments.
Provision for taxes. We expect to be profitable for the year ending June 30,
2001, and accordingly we have recognized a tax provision for the three and six
months ended December 31, 2000. The tax provision represents our anticipated
Alternative Minimum Tax liability based on the fiscal 2001 taxable income.
Six months ended December 31, 2000 vs. Six months ended December 31, 1999
Revenues. Revenues for the six months ended December 31, 2000 increased by
$4,514,000 to $11,193,000 as compared to $6,679,000 for the same period last
year. The components of revenues are sales, which consist of our sales of
products and royalties we earn on the sale of products by others, and contract
revenues. Sales increased by 65% to $10,949,000 for the six months ended
December 31, 2000, as compared to $6,617,000 for the prior year. The increase
was due to the commencement of royalties earned on sales in Europe of
PEG-INTRON, increased ONCASPAR revenue, and increased sales of ADAGEN. The
increase in ONCASPAR sales was due to the lifting of FDA distribution and
labeling restrictions which were in place during the prior year. ADAGEN sales
increased by approximately 7%, resulting from an increase in patients receiving
ADAGEN treatment. Net sales of ADAGEN, which we market, were $6,489,000 for the
six months ended December 31, 2000 as compared to $6,042,000 for the six months
ended December 31, 1999. We had export sales for ADAGEN and ONCASPAR of
$2,423,000 for the six months ended December 31, 2000 and $2,007,000 for the six
months ended December 31, 1999. Of these amounts, sales in Europe were
$2,156,000 for the six months ended December 31, 2000 and $1,748,000 for the six
months ended December 31, 1999.
Cost of Sales. Cost of sales, as a percentage of sales and royalties, improved
to 17% for the six months ended December 31, 2000 as compared to 30% for the six
months ended December 31, 1999. The improvement was primarily due to the prior
year's write-off of ONCASPAR finished goods, related to the previously discussed
manufacturing problems. The improvement was also due to royalties recognized on
Schering-Plough's sales of PEG-INTRON. Schering-Plough bears all manufacturing
costs related to PEG-INTRON.
9
Research and Development. Research and development expenses increased by 43% to
$5,145,000 as compared to $3,590,000 for the six months ended December 31, 1999.
The increase was due to increased payroll and related expenses related to
increases in research personnel and increased contracted services related to the
Phase I clinical trials and preclinical studies for products under development,
including PROTHECAN and PEG-paclitaxel.
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended December 31, 2000 increased by 9% to
$5,588,000, as compared to $5,136,000 in the prior year. The increase was
primarily due to increased ONCASPAR marketing and distribution costs and
increased annual report costs.
Other Income/Expense. Other income/expense increased by $3,618,000 to
$4,177.000, as compared to $559,000 for the prior year. The increase was due to
increased interest income resulting from an increase in interest bearing
investments.
Provision for taxes. We expect to be profitable for the year ending June 30,
2001, and accordingly we have recognized a tax provision for the three and six
months ended December 31, 2000. The tax provision represents our anticipated
Alternative Minimum Tax liability based on the fiscal 2001 taxable income.
Liquidity and Capital Resources
Total cash reserves, including cash and interest bearing investments as of
December 31, 2000 increased by $3,745,000 to $122,158,000, as compared to
$118,413,000 as of June 30, 2000. The increase in total cash reserves was
primarily the result of cash provided from the exercise of non-qualified stock
options. We invest our excess cash in a portfolio of high-grade marketable
securities and United States government-backed securities.
To date, our sources of cash have been the proceeds from the sale of our
stock through public offerings and private placements, sales of, and royalties
on sales of, ADAGEN, ONCASPAR and PEG-INTRON, sales of our products for research
purposes, contract research and development fees, technology transfer and
license fees and royalty advances.
Under our license agreement with Aventis, we received a payment of
$3,500,000 in advance royalties in January 1995. Royalties due under the
agreement will be offset against an original credit of $5,970,000, which
represents the royalty advance plus reimbursement of certain amounts due Aventis
under the original agreement and interest expense, before cash payments will be
made under the agreement. The royalty advance is shown as a long-term liability.
The corresponding current portion of the advance is included in accrued expenses
on the consolidated balance sheets. We will reduce the advance as royalties are
recognized under the agreement. Through December 31, 2000, an aggregate of
$4,307,000 in royalties payable by Aventis has been offset against the original
credit.
As of December 31, 2000, 1,043,000 shares of Series A preferred stock had
been converted into 3,325,000 shares of common stock. Accrued dividends on the
converted Series A preferred stock in the aggregate of $3,770,000 were settled
by the issuance of 235,000 shares of common stock and cash payments of
$1,947,000. The preferred shares outstanding at December 31, 2000 are
convertible into approximately 16,000 shares of common stock. Dividends accrue
on the remaining outstanding shares of Series A preferred stock at a rate of
$14,000 per year. As of December 31, 2000, there were accrued and unpaid
dividends totaling $152,000 on the 7,000 shares of Series A preferred stock
outstanding. We have the option to pay these dividends in either cash or common
stock.
Our current sources of liquidity are cash, cash equivalents and interest
earned on such cash
10
reserves, sales of, and royalties earned on sales of, ADAGEN, ONCASPAR and
PEG-INTRON, sales of our products for research purposes and license fees. Based
upon our currently planned research and development activities and related costs
and our current sources of liquidity, we anticipate our current cash reserves
will be sufficient to meet our capital and operational requirement for the
foreseeable future.
We may seek additional financing, such as through future offerings of
equity or debt securities or agreements with collaborators with respect to the
development and commercialization of products, to fund future operations. We
cannot assure you, however, that we will be able to obtain additional funds on
acceptable terms, if at all.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
In accordance with the statement, the Company adopted FAS 133 as of July 1,
2000. The Company has reviewed FAS 133 and its operations relative to FAS 133
and concluded that it does not use derivative instrument. Accordingly the
adoption of FAS 133 did not have an effect on the results of operations on the
financial position of the Company.
In April 2000, the Financial Accounting Standards Board Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25" (FIN 44) was issued. FIN 44 clarifies the
application of APB No. 25 for certain issues. Among other issues, FIN 44
clarifies the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequences of various modifications to the term of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 became effective July 1,
2000, but certain conclusions in this interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44
did not have a significant effect on our financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statement". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 in the fourth quarter of fiscal 2001 and does not expect this
SAB to have a material effect on the Company's results of operations or
financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our exposure to market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.
Our holdings of financial instruments are comprised of debt securities, and
time deposits. All such instruments are classified as securities held to
maturity. We do not invest in portfolio equity securities or commodities or use
financial derivatives for trading purposes. Our debt security portfolio
represents funds held temporarily pending use in our business and operations. We
manage these funds accordingly. We seek reasonable assuredness of the safety of
principal and market liquidity by investing in rated fixed income securities
while at the same time seeking to achieve a favorable rate of return. Our market
risk exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We typically invest the majority of our investments in the shorter-end
of the maturity spectrum, and at December 31, 2000 all of our holdings were in
instruments maturing in three years or less.
11
The table below presents the principal amounts and related weighted average
interest rates by year of maturity for our investment portfolio as of December
31, 2000.
2001 2002 2003 Total Fair Value
---- ---- ---- ----- ----------
Fixed Rate $25,062,000 $66,053,000 - $91,115,000 $92,133,000
Average Interest Rate 6.30% 6.68% - 6.41% -
Variable Rate - 4,999,000 10,006,000 15,005,000 15,007,000
Average Interest Rate - 6.77% 6.96% 6.56% -
------------------------------------------------------------------------------
$25,062,000 $71,052,000 $10,006,000 $106,120,000 $107,140,000
==============================================================================
12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on December 5, 2000.
(b) The directors elected at the annual meeting were Randy H. Thurman and
Dr. David W. Golde. The term of office as a director for each of Dr. Rosina B.
Dixon, Peter G. Tombros, Robert LeBuhn, Rolf A. Classon and David S. Barlow
continued after the annual meeting.
(c) The matters voted upon at the annual meeting and the results of the
voting, including broker non-votes where applicable, are set forth below.
(i) The stockholders voted 27,082,117 shares in favor and 354,520
shares withheld with respect to the election of Randy H. Thurman as a Class
II director of the Company and 27,374,317 shares in favor and 62,320 shares
withheld with respect to the election of Dr. David W. Golde as a Class II
director of the Company. Broker non-votes were not applicable.
(ii) The stockholders voted 25,315,742 shares in favor, 2,062,889
shares against and 58,006 abstained with respect to a proposal to approve
amendments to the Company's Non-Qualified Stock Option Plan, as amended.
Broker non-votes were not applicable.
(iii) The stockholders voted 27,373,462 shares in favor and 27,834
against and 35,341 abstained with respect to a proposal to ratify the
selection of KPMG LLP to audit the Company's consolidated financial
statements for the fiscal year ending June 30, 2001. Broker non-votes were
not applicable.
13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Page Number
or
Exhibit Incorporation
Number Description By Reference
------ ----------- ------------
3(i) Certificate of Incorporation as amended ~~
3(ii) By laws, as amended *(4.2)
3(iv) Amendment to Certificate of Incorporation dated January 5, 1998 ##3(iv)
10.1 Form of Change of Control Agreements dated as of January 20, 1995
entered into with the Company's Executive Officers ###(10.2)
10.2 Lease - 300-C Corporate Court, South Plainfield, New Jersey ***(10.3)
10.4 Lease Termination Agreement dated March 31, 1995 for
20 Kingsbridge Road and 40 Kingsbridge Road, Piscataway,
New Jersey ###(10.6)
10.5 Option Agreement dated April 1, 1995 regarding 20 Kingsbridge
Road, Piscataway, New Jersey ###(10.7)
10.6 Form of Lease - 40 Cragwood Road, South Plainfield, New Jersey ****(10.9)
10.7 Lease 300A-B Corporate Court, South Plainfield, New Jersey ++(10.10)
10.8 Stock Purchase Agreement dated March 5, 1987 between the
Company and Eastman Kodak Company ****(10.7)
10.9 Amendment dated June 19, 1989 to Stock Purchase Agreement
between the Company and Eastman Kodak Company **(10.10)
10.10 Form of Stock Purchase Agreement between the Company
and the purchasers of the Series A Cumulative
Convertible Preferred Stock +(10.11)
10.11 Amendment to License Agreement and Revised License Agreement
Between the Company and RCT dated April 25, 1985 +++(10.5)
10.12 Amendment dated as of May 3, 1989 to Revised License Agreement
Dated April 25, 1985 between the Company and Research
Corporation **(10.14)
10.13 License Agreement dated September 7, 1989 between the Company
and Research Corporation Technologies, Inc. **(10.15)
10.14 Master Lease Agreement and Purchase Leaseback Agreement dated
October 28, 1994 between the Company and Comdisco, Inc. #(10.16)
10.15 Employment Agreement with Peter G. Tombros dated as of
August 10, 2000 //(10.15)
10.16 Stock Purchase Agreement dated as of June 30, 1995 ~(10.16)
10.17 Securities Purchase Agreement dated as of January 31, 1996 ~(10.17)
10.18 Registration Rights Agreements dated as of January 31, 1996 ~(10.18)
10.19 Warrants dated as of February 7, 1996 and issued pursuant to the
Securities Purchase Agreement dated as of January 31, 1996 ~(10.19)
10.20 Securities Purchase Agreement dated as of March 15, 1996 ~~(10.20)
10.21 Registration Rights Agreement dated as of March 15, 1996 ~~(10.21)
10.22 Warrant dated as of March 15, 1996 and issued pursuant to the
Securities Purchase Agreement dated as of March 15, 1996 ~~(10.22)
10.23 Amendment dated March 25, 1994 to License Agreement dated
September 7, 1989 between the Company and Research
Corporation Technologies, Inc. ~~~(10.23)
10.24 Independent Directors' Stock Plan ~~~(10.24)
10.25 Stock Exchange Agreement dated February 28, 1997, by and between
the Company and GFL Performance Fund Ltd ^(10.25)
10.26 Agreement Regarding Registration Rights Under Registration Rights
Agreement dated March 10, 1997, by and between the Company
and Clearwater Fund IV LLC ^(10.26)
10.27 Common Stock Purchase Agreement dated June 25, 1998 ^^^(10.27)
10.28 Placement Agent Agreement dated June 25, 1998 with SBC Warburg
Dillon Read, Inc. ^^^^(10.28)
10.29 Underwriting Agreement dated March 20,2000 with Morgan
Stanley & Co. Inc., CIBC World Markets Corp., and SG
Cowen Securities Corporation /(10.29)
14
* Previously filed as an exhibit to the Company's Registration
Statement on Form S-2 (File No. 33-34874) and incorporated herein
by reference thereto.
** Previously filed as exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1989 and
incorporated herein by reference thereto.
*** Previously filed as an exhibit to the Company's Registration
Statement on Form S-18 (File No. 2-88240-NY) and incorporated
herein by reference thereto.
**** Previously filed as exhibits to the Company's Registration
Statement on Form S-1 (File No. 2-96279) filed with the
Commission and incorporated herein by reference thereto.
+ Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-39391) filed with the
Commission and incorporated herein by reference thereto.
++ Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 and
incorporated herein by reference thereto.
+++ Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1985 and
incorporated herein by reference thereto.
# Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1994 and
incorporated herein by reference thereto.
## Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997 and
incorporated herein by reference thereto.
### Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995 and
incorporated herein by reference thereto.
~ Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1995 and
incorporated herein by reference thereto.
~~ Previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference thereto.
~~~ Previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for
15
the quarter ended December 31, 1996 and incorporated herein by
reference thereto.
^ Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference thereto.
^^ Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997 and incorporated
herein by reference thereto.
^^^ Previously filed as an exhibit to the Company's Registration
Statement on Form S-3 (File No. 333-58269) filed with the
Commission and incorporated herein by reference thereto.
^^^^ Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended June 30, 1998 and incorporated
herein by reference thereto.
/ Previously filed as an exhibit to the Company's Registration
Statement on Form S-3 (File No. 333-30818) filed with the
Commission and incorporated herein by reference thereto.
// Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended June 30, 2000 and incorporated
herein by reference thereto.
16
(b) Reports on Form 8-K.
On November 2, 2000, we filed with the Commission a Current Report on Form 8-K
dated October 30, 2000, reporting that Schering-Plough had reported results of a
pivotal Phase III clinical study at the Presidential Plenary Session of the 51st
Annual Meeting of the American Association for the Study of Liver Diseases
(AASLD) in Dallas.
On November 6, 2000, we filed with the Commission a Current Report on Form 8-K
dated November 6, 2000, reporting the intent of Peter G. Tombros, our President
and Chief Executive offer, to exercise options to acquire 300,000 shares of
Enzon common stock, and his irrevocable instruction to his investment advisor to
sell a portion of these shares over time.
On November 7, 2000, we filed with the Commission a Current Report on Form 8-K
dated November 7, 2000, reporting the results from an ongoing Phase I clinical
trial of PROTEHCAN(TM) (PEG-camptothecin) which were presented at the 11th
NCI-EORTC-AACR Symposium on New Drugs in Cancer Therapy in Amsterdam.
On November 8, 2000, we filed with the Commission a Current Report on Form 8-K
dated November 6, 2000, reporting the financial results from our first quarter
of fiscal year 2001.
On December 19, 2000, we filed with the Commission a Current Report on Form 8-K
dated December 18, 2000, reporting our submission of an Investigational New Drug
(IND) application to the Food and Drug Administration (FDA) for PEG-paclitaxel,
a PEG-modified version of paclitaxel.
On December 21, 2000, we filed with the Commission a Current Report on Form 8-K
dated December 20, 2000, reporting that the European Union's (EU) Committee for
Proprietary Medicinal Products (CPMP) of the European Agency for the Evaluation
of Medicinal Products (EMEA) had issued a positive opinion to Schering-Plough
Corporation recommending approval of PEGINTRON(TM) (peginterferon alfa-2b)
Injection and REBETOL(R) as combination therapy for the treatment of hepatis C.
17
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: February 14, 2001 By:
-------------------------------
Peter G. Tombros
President and Chief Executive
Officer
By:
-------------------------------
Kenneth J. Zuerblis
Vice President, Finance,
Chief Financial Officer
(Principal Financial
and Accounting Officer) and
Corporate Secretary
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: February 14, 2001 By: /Peter G. Tombros
------------------------------------
Peter G. Tombros
President and Chief Executive
Officer
By: /Kenneth J. Zuerblis
-------------------------------------
Kenneth J. Zuerblis
Vice President, Finance,
Chief Financial Officer
(Principal Financial
and Accounting Officer) and
Corporate Secretary