ENZON PHARMACEUTICALS, INC. Unless the context requires otherwise, references in this Quarterly Report on
Form 10-Q to "Enzon," the "Company," "we," "us," or "our" and similar terms mean
Forward-Looking Information and Factors That May Affect Future Results
The following discussion contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in the following discussion, other than statements that are purely historical, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans," or "intends" or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements, including the risks and uncertainties set forth in Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K. These risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance can be given that the future results covered by the forward-looking statements will be achieved.
The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars and not the rounded millions of dollars reflected in this section.
Overview
During 2020, the Company adopted a Section 382 rights plan and completed a
Rights Offering, each as further described below. As a result of the successful
completion of the Rights Offering, we are positioned as a public company
acquisition vehicle, where we can become an acquisition platform and more fully
utilize our NOLs and enhance stockholder value. We intend to acquire profitable
businesses, entities or revenue streams that will generate sufficient income so
that we can utilize our approximately
Prior to 2017, the primary source of our royalty revenues was derived from sales
of PegIntron, which is marketed by Merck. We currently have no clinical
operations and limited corporate operations. We have no intention of resuming
any clinical development activities. Royalty revenues from sales of PegIntron
accounted for 0% of our total revenues for the year ended
We have a marketing agreement with
Due to the challenges associated with developing and obtaining approval for drug products, and the lack of our involvement in the development and approval process, there is substantial uncertainty as to whether we will receive any milestone or royalty payments under the Micromet Agreement. We will not recognize revenue until all revenue recognition requirements are met.
Acquisition Activities
Our Board of Directors and our management are actively involved in pursuing, sourcing, reviewing and evaluating various potential acquisition transactions consistent with our long-term strategy. Our management and Board of Directors have made a number of contacts and engaged in discussions with principals of individual companies and financial advisors on behalf of various individual companies, while continuing to evaluate potential transactions. To date, we have not developed any actionable transactions. We will continue to update our stockholders as material developments arise.
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Throughout this Management's Discussion and Analysis, the primary focus is on our results of operations, cash flows and financial condition. The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars.
Results of Operations Revenues:
In the three months ended
Other Income (in thousands of dollars):
Three Months Ended
March 31,
%
2023 Change 2022
Other income $ 447 22,250 $ 2 Other income is attributable to the interest and dividends received on the
invested cash and cash equivalents we received from the
Operating Expenses:
General and Administrative (in thousands of dollars):
Three Months Ended March 31,
Percent
2023 Change 2022
General and administrative $ 285 (4) % $ 297 General and administrative expenses decreased by approximately
Tax Expense:
Assuming no acquisition is completed or material changes in results through
year-end 2023, the Company has partially reversed the valuation allowances as of
Liquidity and Capital Resources
Our current source of liquidity is our existing cash on hand, which includes the
approximately
While we are positioned as a public company acquisition vehicle, where we can become an acquisition platform and more fully utilize our NOLs and enhance stockholder value, we cannot assure you that we will succeed in making acquisitions that are profitable and that will enable us to utilize our NOLs.
Cash provided by operating activities represents a net income, as adjusted for
certain non-cash items including the effect of changes in operating assets and
liabilities. Cash provided by operating activities during the three months ended
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2022. The increase of approximately
Cash used in financing activities represents cash dividends of approximately
The net effect of the foregoing was a decrease of cash and cash equivalents of
approximately
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually limited
purposes. As of
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our consolidated financial statements are presented in accordance with
accounting principles that are generally accepted in the
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.
Revenues
Royalties under our license agreements with third-parties and pursuant to the sale of our former specialty pharmaceutical business are recognized when reasonably determinable and earned through the sale of the product by the third-party and collection is reasonably assured. Notification from the third-party licensee of the royalties earned under the license agreement is the basis for royalty revenue recognition. This information generally is received from the licensees in the quarter subsequent to the period in which the sales occur.
Contingent payments due under the asset purchase agreement for the sale of our former specialty pharmaceutical business are recognized as revenue when the milestone has been achieved, collection is assured, such payments are non-refundable and no further effort is required on the part of the Company or the other party to complete the earning process.
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Income Taxes
Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance on net deferred tax assets is
provided for when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. As of
We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that we will be able to sustain our position.
Forward-Looking Information and Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in the Quarterly Report on Form 10-Q, other than statements that are purely historical, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as the words "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans" or "intends" or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements, including, but not limited to, the following risks and uncertainties:
? We may be unsuccessful in our strategy to fully utilize our NOLs and other tax
assets and enhance stockholder value as a public company acquisition vehicle.
? Our sources of revenue are limited and we may incur losses for the foreseeable
future.
In recent years, we derived most of our royalty revenues from continued sales
? of PegIntron, which have been in sharp decline. In addition, our right to
receive royalties on
2018, respectively, which has negatively impacted our royalty revenues.
Our rights to receive royalties on sales of PegIntron and sales of other drug
products have expired in various jurisdictions and, except for Vicineum, will,
? by 2024, expire world-wide. We currently do not anticipate any significant
royalties from other sources, but we may acquire new sources of royalty
revenues.
The unprecedented actions taken globally to control the spread of COVID 19 and
its related variants, as well as the uncertainty surrounding the success of
? global vaccination efforts, may materially and adversely affect our future
right to receive licensing fees, milestone payments and royalties on product
candidates that are being developed by third parties.
We have reallocated all employment responsibilities and outsourced all
? corporate functions, which makes us more dependent on third parties to perform
these corporate functions.
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We may be subject to a variety of types of product liability or other claims
? based on allegations that the use of our product candidates by participants in
our previously conducted clinical trials has resulted in adverse effects, and
our insurance may not cover all product liability or other claims.
? Our revenues largely depend on proprietary rights, which may offer only limited
protection against the development of competing products.
? We are party to license agreements whereby we may receive royalties and or
milestone payments from products subject to regulatory approval.
? The price of our common stock has been, and may continue to be, volatile.
Our common stock is quoted on the OTCQX market of the OTC Markets Group, Inc.,
? which has a very limited trading market and, therefore, market liquidity for
our common stock is low and our stockholders' ability to sell their shares of
our common stock may be limited.
The declaration of dividends is within the discretion of our Board of
Directors, subject to any applicable limitations under
as well as the requirements of the Series C Preferred Stock. Our ability to pay
? dividends in the future depends on, among other things, our fulfillment of the
conditions of the Series C Preferred Stock, fluctuating royalty revenues, our
ability to acquire other revenue sources and our ability to manage expenses,
including costs relating to our ongoing operations.
? We have adopted a Section 382 rights plan, which may discourage a corporate
takeover.
Anti-takeover provisions in our charter documents and under
? law may make it more difficult to acquire us, even though such acquisitions may
be beneficial to our stockholders.
The terms of our outstanding Series C Preferred Stock and the issuance of
? additional series of preferred stock may adversely affect rights of our common
stockholders.
? The interests of our significant stockholders may conflict with the interests
of other stockholders.
If we experience an "ownership change," as defined in Section 382 of the
Internal Revenue Code of 1986, as amended, our ability to fully utilize our
? NOLs on an annual basis will be substantially limited, and the timing of the
usage of the NOLs could be substantially delayed, which could therefore
significantly impair the value of those benefits.
If we experience a "Change of Control," as defined in Certificate of
Designation of the Series C Preferred Stock, the holders of the Series C
? Preferred Stock shall have the right, at such holder's option, to require the
Company to redeem at the Liquidation Preference then in effect all or a portion
of such holder's shares of Series C Preferred Stock, which would negatively
impact our available cash.
A more detailed discussion of these risks and uncertainties and other factors
that could affect results is contained in our filings with the .
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