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, 2002 Commission File No. 0-12957
ENZON PHARMACEUTICALS, 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.)
685 Route 202/206, Bridgewater, New Jersey 08807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 541-8600
ENZON, INC.
(Former names or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b -2 of the Exchange Act). Yes |X| No |_|
As of February 12, 2003, there were 43,392,448 shares of Common Stock, par value
$.01 per share, outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 2002 and June 30, 2002
(In thousands, except share data)
December 31, 2002 June 30, 2002
(unaudited) *
----------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 99,357 $ 113,858
Short-term investments 20,263 75,165
Accounts receivable 32,151 26,050
Inventories 12,620 2,214
Other current assets 3,848 4,175
--------- ---------
Total current assets 168,239 221,462
--------- ---------
Property and equipment 36,530 19,230
Less accumulated depreciation and amortization 9,909 9,128
--------- ---------
26,621 10,102
--------- ---------
Other assets:
Marketable securities 26,135 295,991
Cost method equity investments 21,145 48,382
Debt issue costs, net 10,032 10,946
Intangible assets, net 230,899 23,865
Goodwill 150,841 --
--------- ---------
439,052 379,184
--------- ---------
Total assets $ 633,912 $ 610,748
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,192 $ 4,526
Accrued expenses 22,026 6,175
Accrued interest 9,000 9,000
--------- ---------
Total current liabilities 45,218 19,701
--------- ---------
Accrued rent 500 552
Notes payable 400,000 400,000
--------- ---------
400,500 400,552
--------- ---------
Stockholders' equity:
Preferred stock-$.01 par value, authorized 3,000,000 shares; issued and
outstanding 7,000 shares at December 31, 2002 and June 30, 2002
(liquidation preference aggregating $354,000
at December 31, 2002 and $347,000 at June 30, 2002) -- --
Common stock-$.01 par value, authorized 90,000,000 shares,
issued and outstanding 43,364,523 shares at December 31, 2002 and
42,999,823 shares at June 30, 2002 434 429
Additional paid-in capital 267,671 262,854
Accumulated other comprehensive income (loss) (220) 1,096
Deferred compensation (4,549) (1,202)
Accumulated deficit (75,142) (72,682)
--------- ---------
Total stockholders' equity 188,194 190,495
--------- ---------
Total liabilities and stockholders' equity $ 633,912 $ 610,748
========= =========
* Condensed from audited financial statement.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
2
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three and Six Months Ended December 31, 2002 and 2001
(In thousands, except per share data)
(unaudited)
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
Net sales $ 8,544 $ 5,872 $ 15,110 $ 10,954
Royalties 22,903 12,630 41,321 19,617
Contract revenue 50 100 134 175
-------- -------- -------- --------
Total revenues 31,497 18,602 56,565 30,746
-------- -------- -------- --------
Costs and expenses:
Cost of sales 4,265 1,456 6,779 2,846
Research and development expenses 5,692 3,988 9,754 7,486
Selling, general and administrative expenses 7,397 4,489 11,305 8,576
Amortization of acquired intangibles 1,293 36 1,328 71
Write-down of carrying value of investments 27,237 -- 27,237 --
-------- -------- -------- --------
Total costs and expenses 45,884 9,969 56,403 18,979
-------- -------- -------- --------
Operating income (loss) (14,387) 8,633 162 11,767
-------- -------- -------- --------
Other income (expense):
Investment and other income, net 4,345 4,750 7,798 10,927
Interest expense (4,957) (4,921) (9,914) (9,915)
-------- -------- -------- --------
(612) (171) (2,116) 1,012
-------- -------- -------- --------
Income (loss) before taxes (14,999) 8,462 (1,954) 12,779
Tax (benefit) expense 245 (183) 506 (97)
-------- -------- -------- --------
Net income (loss) $(15,244) $ 8,645 $ (2,460) $ 12,876
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.35) $ 0.20 $ (0.06) $ 0.30
======== ======== ======== ========
Diluted earnings (loss) per common share $ (0.35) $ 0.20 $ (0.06) $ 0.29
======== ======== ======== ========
Weighted average number of common shares
outstanding-basic 43,011 42,767 42,995 42,444
======== ======== ======== ========
Weighted average number of common shares and
dilutive potential common shares outstanding 43,011 43,959 42,995 43,792
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
3
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
Six Months Ended December 31, 2002 and 2001
(In thousands)
(unaudited)
Six Months Ended
December 31,
2002 2001
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (2,460) $ 12,876
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,610 1,332
Non-cash expense for issuance of common stock 213 153
Amortization of bond premium/discount 1,983 (3,573)
Non-cash write-down of carrying value of investment 27,237 --
Decrease in accrued rent (52) (13)
Changes in assets and liabilities 5,961 (2,718)
--------- ---------
Net cash provided by operating activities 35,492 8,057
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,594) (3,538)
Purchase of ABELCET business (369,120) --
Proceeds from sale of investments 350,318 232,249
Maturities of investments 53,000 88,429
Purchases of investments (81,859) (454,941)
--------- ---------
Net cash used in investing activities (51,255) (137,801)
--------- ---------
Cash flows from financing activities -
proceeds from exercise of common stock options 1,262 4,241
--------- ---------
Net decrease in cash and cash equivalents (14,501) (125,503)
Cash and cash equivalents at beginning of period 113,858 310,224
--------- ---------
Cash and cash equivalents at end of period $ 99,357 $ 184,721
========= =========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
4
ENZON PHARMACEUTICALS, 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 Pharmaceuticals, Inc. (the
"Company") and its subsidiaries in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. Accordingly, they do not include all of the information and
footnotes required 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.
Certain prior year balances were reclassified to conform to the 2002
presentation. Interim results are not necessarily indicative of the results that
may be expected for the year.
(2) Comprehensive Income (Loss)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income.
The following table reconciles net income to comprehensive income (loss)
(in thousands):
Three months ended Six months ended
December 31 December, 31
2002 2001 2002 2001
-------- ------- ------- --------
Net income (loss) $(15,244) $ 8,645 $(2,460) $ 12,876
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during the period (1,281) (1,331) (800) (1,267)
Less: reclassification adjustment
for net gain realized in net income (2,115) -- (2,115) 885
-------- ------- ------- --------
Total other comprehensive income (loss) (3,396) (1,331) (1,315) (382)
-------- ------- ------- --------
Total comprehensive income (loss) $(18,640) $ 7,314 $(3,775) $ 12,494
======== ======= ======= ========
(3) Earnings Per Common Share
Basic earnings per share is computed by dividing the net income 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, 2001, 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 non-qualified stock options calculated using the treasury stock method and
the number of shares issuable upon conversion of the outstanding Series A
Preferred Stock. Due to the net loss recorded for the three and six months ended
December 31, 2002, the exercise or conversion of approximately 587,000 dilutive
potential common shares is not included for purposes of the diluted loss per
share calculation. The number of shares issuable upon conversion of the
Company's 4.5% Convertible Subordinated Notes due 2008 (the "Notes") have not
been included as the effect of their inclusion
5
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
would be anti-dilutive. As of December 31, 2002, the Company had 6,989,000
dilutive potential common shares outstanding that could potentially dilute
future earnings per share calculations.
The following table reconciles the basic and diluted earnings (loss) per
share calculations (in thousands):
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
-------- ------- -------- -------
Net income (loss) $(15,244) $ 8,645 $ (2,460) $12,876
Less: Preferred stock dividends 4 4 7 7
-------- ------- -------- -------
Net income (loss) available to common
Stockholders $(15,248) $ 8,641 $ (2,467) $12,869
======== ======= ======== =======
Weighted average number of common
shares outstanding-basic 43,011 42,767 42,995 42,444
Effect of dilutive securities:
Conversion of preferred stock -- 16 -- 16
Assumed exercise of non-
qualified stock options and
restricted stock -- 1,176 -- 1,332
-------- ------- -------- -------
Weighted average number of common
shares and dilutive potential common
shares outstanding 43,011 43,959 42,995 43,792
======== ======= ======== =======
(4) Inventories
The composition of inventories at December 31, 2002 and June 30, 2002 is
as follows (in thousands):
December 31, 2002 June 30, 2002
----------------- -------------
Raw materials $ 5,771 $ 827
Work in process 2,568 1,043
Finished goods 4,281 344
------- ------
$12,620 $2,214
======= ======
(5) 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 $9 million for the six months ended December 31,
2002. There were no cash payments for interest for the six months ended December
31, 2001. There were no income tax payments made for the six months ended
December 31, 2002 and 2001.
6
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
(6) Income Taxes
The Company recognized a tax provision for the six months ended December
31, 2002 and 2001 which represents the Company's anticipated Alternative Minimum
Tax liability based on the anticipated taxable income for the full fiscal year.
The 2001 fiscal year also had a tax benefit related to the sale of certain New
Jersey state net operating loss carryforwards.
(7) Business Segments
A single management team that reports to the Chief Executive Officer
comprehensively manages the business operations. The Company does not operate
separate lines of business or separate business entities with respect to any of
its approved products or product candidates. In addition, the Company does not
conduct any operations outside of the United States. The Company does not
prepare discrete financial statements with respect to separate product areas.
Accordingly, the Company does not have separately reportable segments as defined
by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
(8) Business Acquisition
On November 22, 2002, the Company acquired the North American rights and
operational assets associated with the development, manufacture, sales and
marketing for ABELCET(R) (Amphotericin B Lipid Complex Injection) (the "ABELCET
Product Line") from Elan Corporation, plc, for $360 million plus certain
out-of-pocket expenses. The acquisition is being accounted for by the purchase
method of accounting in accordance with SFAS No. 141 "Business Combinations".
The total purchase price of the acquisition was (in thousands):
Cash $360,000
Out of pocket expenses, primarily legal,
investment banking and accounting fees 9,120
--------
$369,120
========
The purchase price was allocated to the tangible and identifiable
intangible assets acquired based on their estimated fair values at the
acquisition date. The excess of the purchase price over the fair value of
identifiable assets and liabilities acquired amounted to $150.8 million and was
allocated to goodwill.
The following table summarizes the estimated fair values of the assets
acquired as of the acquisition date (in thousands):
Inventories $ 8,572
Property, plant and equipment 13,707
Intangible assets 196,000
Goodwill 150,841
--------
$369,120
========
7
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
Property, plant and equipment and intangible assets were recorded at the
estimated fair value of the assets acquired as determined by a preliminary third
party valuation report. These values are based on preliminary results by third
party appraisals which are still being finalized. Therefore, actual results may
differ materially from preliminary results. Intangible assets include the
following components (in thousands):
Product Patented Technology (12 year estimated life) $ 64,400
Manufacturing Patent (12 year estimated life) 18,300
NDA Approval (12 year estimated life) 31,100
Marketing Intangibles (15 year estimated life) 80,000
Manufacturing Contract (3 year estimated life) 2,200
--------
$196,000
========
Amortization expense for the next five fiscal years is expected to be
approximately $15.5 million per year. Goodwill will not be amortized but will be
tested for impairment at least annually.
The acquisition was accounted for as a purchase in accordance with the
guidance in SFAS 141, Business Combinations, with the results of operations and
cash flows for the ABELCET Product Line included in the Company's consolidated
results from the date of the acquisition.
The unaudited pro forma results of operations is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred if the transaction had been consummated at the
dates indicated, nor is it necessarily indicative of future operating results of
the combined companies and should not be construed as representative of these
amounts for any future dates or periods.
The following unaudited pro forma results of operations of the Company for
the three and six-month periods ended December 31, 2002 and 2001, respectively,
assumes the acquisition of the ABELCET Product Line has been accounted for using
the purchase method of accounting as of July 1, 2002 and 2001, respectively, and
assumes the purchase price has been allocated to the assets purchased based on
fair values at the date of acquisition.
The ABELCET Product Line's results of operations included in these pro
forma financial statements are derived from its unaudited financial statements
for the three and six-month periods ended December 31, 2002 and 2001,
respectively. The ABELCET Product Line's financial statements included in the
pro forma information as of all dates and for all periods presented have been
adjusted, where appropriate, to present the ABELCET Product Line's financial
position and results of operations in accordance with generally accepted
accounting principles in the United States.
8
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
The following unaudited pro forma information presents a summary of the
Company's consolidated results of operations as if the ABELCET Product Line
acquisition had taken place on July 1, 2001 (in thousands, except per share
information):
Three months ended Six months ended
December 31, December 31,
------------------- --------------------
2002 2001 2002 2001
-------- ------- ---------- --------
Product sales $ 18,899 $27,273 $ 40,967 $54,128
Total revenues 41,852 40,003 82,422 73,920
Net income (loss) (24,125) 8,528 (16,629) 13,018
Pro forma earnings (loss) per share:
Basic $ (0.56) 0.20 $ (0.38) $ 0.31
Diluted $ (0.55) $ 0.19 $ (0.37) $ 0.30
(9) Write-down of Investment
------------------------
In January 2002, the Company entered into a broad strategic alliance with
Nektar Therapeutics (Nektar) (formerly Inhale Therapeutic Systems, Inc.) to
co-develop products utilizing both companies' proprietary drug delivery
platforms. As a part of this agreement, the Company purchased $40 million of
newly issued Nektar convertible preferred stock which is currently convertible
into Nektar common stock at a conversion price of $22.79 per share. Under the
cost method of accounting, investments are carried at cost and are adjusted only
for other-than-temporary declines in fair value, distributions of earnings and
additional investments.
As a result of the continued decline in the price of Nektar's common
stock, the Company determined that the decline in the value of its investment in
Nektar was other than temporary. Accordingly, during the three months ended
December 31, 2002, the Company recorded a write down of the carrying value of
its investment in Nektar, which resulted in a non-cash charge of $27.2 million.
The adjustment was calculated based on an assessment of the fair value of the
investment.
(10) License Agreement
-----------------
Effective December 31, 2002, Enzon obtained an exclusive license for the
right to sell, market and distribute SkyePharma PLC's ("SkyePharma") DEPOCYT(R),
an injectable chemotherapeutic approved for the treatment of patients with
lymphomatous meningitis in the United States and Canada.
Enzon will pay a license fee of $12 million for the North American rights
to DEPOCYT. SkyePharma will manufacture DEPOCYT and Enzon will purchase the
finished product at a purchase price equal to 35% of net sales, which percentage
of net sales can be reduced should certain defined sales target be exceeded.
SkyePharma is also entitled to milestone payments based on the achievement of
certain sales levels and the approval of additional indications. Enzon is
required to meet certain minimum sales levels for the product which are based on
historical sales levels. Enzon's license is for an initial term of ten years and
is automatically renewable for successive two year terms thereafter. The Company
has recorded the $12 million in intangible assets (product rights) and is
amortizing it over a ten year period. The amount was paid in early January 2003.
As such, at December 31, 2002 the amount due was included in accrued expenses in
the accompanying balance sheet.
On January 2, 2003, the Company and SkyePharma also entered into a
strategic alliance based on a broad
9
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
technology access agreement. The two companies will draw on their combined drug
delivery technology and expertise to jointly develop up to three products for
future commercialization. These products will be based on SkyePharma's
proprietary platforms in the areas of oral, injectable and topical drug
delivery, supported by technology to enhance drug solubility and Enzon's
proprietary PEG modification technology, for which Enzon will receive a $3.5
million technology access fee. SkyePharma will receive a milestone payment for
each product based on its own proprietary technology that enters Phase II
clinical development. Research and development costs related to the technology
alliance will be shared equally, as will future revenues generated from the
commercialization of any jointly-developed products.
10
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. We cannot assure you 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 for the fiscal year
ended June 30, 2002, 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.
Acquisition of ABELCET Business
On November 22, 2002, we acquired the North American rights and
operational assets associated with the development, manufacture, sales and
marketing of ABELCET(R) (Amphotericin B Lipid Complex Injection) ("the ABELCET
Product Line") from Elan Corporation, plc ("Elan") for $360 million plus
out-of-pocket expenses. This transaction is being accounted for as a business
combination.
Unless otherwise indicated, the discussions in this report of the results
of operations for the three and six months ended December 31, 2002 and financial
condition at December 31, 2002 include the results of operations of the ABELCET
Product Line commencing from November 23, 2002. Comparisons are made to the
results of operations for the three and six months ended December 31, 2001, and
financial condition as of June 30, 2002, which include only the historical
results of Enzon Pharmaceuticals, Inc.
Results of Operations
Three months ended December 31, 2002 vs. Three months ended December 31, 2001
Revenues. Revenues for the three months ended December 31, 2002 increased by 69%
to $31,497,000, as compared to $18,602,000 for the three months ended December
31, 2001. The components of revenues are net sales and royalties we earn on the
sale of our products by others and contract revenues. Net sales increased 45% to
$8,544,000 for the three months ended December 31, 2002, as compared to
$5,872,000 for the three months ended December 31, 2001. The increase in net
sales was due to the commencement of sales of ABELCET in North America and
increased sales of ADAGEN(R) and ONCASPAR(R). During November 2002, we acquired
the North American rights and operational assets associated with the
development, manufacture, sales and marketing for ABELCET from Elan. During the
three months ended December 31, 2002, we recorded $1,322,000 of sales related to
ABELCET, of which $588,000 related to sales of the product in North America and
$733,000 related to the shipment of the product to Elan for the European market,
and other contract manufacturing revenue. Sales of ONCASPAR increased by 22% to
$3,099,000 for the three months ended December 31, 2002 from $2,543,000 in the
previous year as a result of the reacquisition of our rights to market and
distribute ONCASPAR for certain territories previously licensed to Aventis.
Sales of ADAGEN increased by 24% for the three months ended December 31, 2002 to
$4,123,000, as compared to $3,329,000 for the three months ended December 31,
2001 due to an increase in patients.
Royalties for the three months ended December 31, 2002 increased to
$22,903,000, as compared to $12,630,000 for the three months ended December 31,
2001. The increase was primarily due to a full three months of sales during the
current quarter of PEG-INTRON(R) in combination with REBETOL(R) in the U.S.
Schering-Plough launched PEG-INTRON as combination therapy with REBETOL in the
U.S. in October 2001.
While we commenced the sale of ABELCET during the quarter ended December
31, 2002, sales of the product will be limited until January 2003 in order to
bring down the level of product held by our wholesalers. We expect sales to
return to normalized levels during February 2003 and for the remainder of fiscal
2003. We expect
11
ADAGEN and ONCASPAR sales to grow over the next year at similar levels as
achieved during the previous twelve months. During October 2002, Hoffmann-La
Roche's PEGASYS(R), a pegylated version of its interferon product Roferon(R)-A,
was approved in the United States as a monotherapy for hepatitis C. Based upon
Schering-Plough's historical market share of the alpha interferon market for
hepatitis C, the published clinical results of PEG-INTRON and PEGASYS, and the
fact that Schering-Plough has been marketing PEG-INTRON in the United States
since February 2001 and in Europe since June 2000, we do not expect PEGASYS to
displace PEG-INTRON as the market leader. However, we cannot assure you that the
overall market for pegylated alpha interferon products will, in fact, increase
or that Schering-Plough will be able to effectively compete with Roche in this
market. Moreover, we cannot assure you that any particular sales levels of
ABELCET, ADAGEN, ONCASPAR or PEG-INTRON will be achieved or maintained.
During the three months ended December 31, 2002, we had export sales and
royalties on export sales of $7,522,000, of which $6,803,000 were in Europe.
Export sales and royalties recognized on export sales for the prior quarter were
$6,949,000, of which $6,527,000 were in Europe.
Cost of Sales. Cost of sales, as a percentage of net sales increased to 50% for
the three months ended December 31, 2002 as compared to 25% for the three months
ended December 31, 2001. The increase was due to higher cost of goods sold for
ABELCET, due to certain purchase accounting adjustments to the acquired
inventory and as a result of unabsorbed capacity costs. The increase was also
due to our reacquisition of ONCASPAR, which resulted in increased cost of goods
sold for the product. Under the reacquisition agreement we made a $15 million
payment to Aventis in June 2002 and we will pay Aventis a 25% royalty on net
sales of ONCASPAR. The royalty and amortization of the $15 million payment are
included in cost of goods sold for the product, accounting for the increase in
cost of goods sold as a percentage of sales.
Research and Development. Research and development expenses increased by 43% to
$5,692,000 for the three months ended December 31, 2002 from $3,988,000 for the
three months ended December 31, 2001. The increase was primarily due to
increased payroll and related expenses due to increased headcount related to our
internal research and preclinical activities and increased spending related to
our Micromet collaboration to advance our SCA technology and develop the next
generation of antibody products. Research and development activities are
expected to continue to increase significantly as we continue the advancement of
the current and additional Phase II clinical trials for PROTHECAN(R) and we
conduct preclinical and clinical trials for additional compounds.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended December 31, 2002 increased by 65% to
$7,397,000, as compared to $4,489,000 in the three months ended December 31,
2001. This increase was due to; (i) increased selling expenses related to the
ABELCET acquisition and the sales force we hired from Elan; (ii) increased sales
and marketing costs due to the reacquisition of marketing and distribution
rights for ONCASPAR; and (iii) increased general and administrative personnel
and related costs. These increases were partially offset by a reduction in legal
expense related to the prior years patent litigation with Nektar Therapeutics,
formerly Inhale Therapeutics. During January 2002, we settled our patent
infringement suit with Nektar and entered into a broad-based technology
collaboration.
Amortization. Amortization increased by $1,257,000 to $1,293,000 in the three
months ended December 31, 2002 compared to the prior year as a result of the
intangible assets acquired in connection with the ABELCET acquisition during the
quarter. Amortization of intangible assets is provided over their estimated
useful lives ranging from 3 to 15 years on a straight-line basis.
Write-down of Investment. In January 2002, the Company entered into a broad
strategic alliance with Nektar Therapeutics (Nektar) (formerly Inhale
Therapeutic Systems, Inc.) to co-develop products utilizing both companies'
proprietary drug delivery platforms. As a part of this agreement, the Company
purchased $40 million of newly issued Nektar preferred convertible stock which
is convertible into Nektar common stock at a current conversion price of $22.79
per share. Under the cost method of accounting, investments are carried at cost
and are adjusted only for other-than-temporary declines in fair value,
distributions of earnings and additional investments.
12
As a result of the continued decline in the price of Nektar's common stock, the
Company determined that the decline in the value of it's investment in Nektar
was other than temporary. Accordingly, during the three months ended December
31, 2002, the Company recorded a write down of the carrying value of its
investment in Nektar, which resulted in a non-cash charge of $27.2 million. The
adjustment was calculated based on an assessment of the fair value of the
investment.
Other Income (Expense). Investment and other income for the three months ended
December 31, 2002 decreased to $4,345,000, as compared to $4,750,000 for the
three months ended December 31, 2001. The decrease resulted from a decrease in
interest bearing investments due to our payment of $369 million in connection
with our purchase of the ABELCET Product Line from Elan in November 2002 and a
decline in interest rates on our investments. This reduction was offset by
approximately $2.1 million in realized gains resulting from the sale of short
term investments sold to fund the ABELCET acquisition. Interest expense remained
relatively unchanged as compared to the same quarter last year. The majority of
interest expense is related to $400,000,000 in 4.5% convertible subordinated
notes outstanding.
Income Taxes. During the three months ended December 31, 2002 we recognized a
tax provision that represents our anticipated Alternative Minimum Tax liability
based on our anticipated taxable income for the full fiscal year. Fiscal 2001
had the same minimum tax liability offset by the sale of certain New Jersey
state net operating loss carryforwards.
Six months ended December 31, 2002 vs. Six months ended December 31, 2001
Revenues. Revenues for the six months ended December 31, 2002 increased by 84%
to $56,565,000 as compared to $30,746,000 for the same period last year. The
components of revenues are net sales, royalties we earn on the sale of products
by others and contract revenues. Net sales increased by 38% to $15,110,000 for
the six months ended December 31, 2002, as compared to $10,954,000 for the same
period last year. The increase in net sales was due to the commencement of sales
of ABELCET in North America and increased sales of ADAGEN and ONCASPAR. During
November 2002, we acquired the North American rights and operational assets
associated with the development, manufacture, sales and marketing for ABELCET
from Elan. During the six months ended December 31, 2002, we recorded $1,322,000
of sales related to ABELCET, of which $588,000 related to sales of the product
in North America and $733,000 related to the shipment of the product to Elan for
the European market, and other contract manufacturing revenue. ONCASPAR sales
for the six months ended December 31, 2002 increased to $5,855,000, or 25%,
compared to $4,701,000 in the same period last year due to the reacquisition of
our rights to market and distribute ONCASPAR from Aventis during the six months
ended December 31, 2002. ADAGEN sales increased by 27% to $7,934,000 for the six
months ended December 31, 2002 compared to $6,252,000, in the prior year due to
an increase in patients.
Royalties for the six months ended December 31, 2002, increased to
$41,321,000 as compared to $19,617,000 in the same period last year. The
increase was primarily due to a full six months of sales in 2002 of PEG-INTRON
in combination with REBETOL in the U.S. and increased sales of PEG-INTRON in
Europe. Schering-Plough launched PEG-INTRON as combination therapy with REBETOL
in the U.S. in October 2001.
During the six months ended December 31, 2002, we had export sales and
royalties on export sales of $15,644,000, of which $13,999,000 were in Europe.
Export sales and royalties recognized on export sales for the prior year were
$11,883,000, of which $11,280,000 were in Europe.
Cost of Sales. Cost of sales as a percentage of sales increased to 45% for the
six months ended December 31, 2002, as compared to 26% for the six months ended
December 31, 2001. The increase was due to a higher cost of goods sold for
ONCASPAR due to our reacquisition of the product from Aventis. Under the
reacquisition agreement, we made a $15 million payment to Aventis in June 2002
and will pay Aventis a 25% royalty on net sales of ONCASPAR. The royalty and
amortization of the $15 million payment are included in cost of goods sold for
the product, accounting for the increase in cost of goods sold as a percentage
of sales. The increase was also due to high
13
cost of goods sold for ABELCET, due to certain purchase accounting adjustments
to the acquired inventory and as a result of unabsorbed capacity costs.
Research and Development. Research and development expenses increased by 30% to
$9,754,000, as compared to $7,486,000 for the six months ended December 31,
2001. The increase was primarily due to increased payroll and related expense
due to increased headcount related to our internal research and preclinical
activities and increased spending related to our SCA technology collaboration
with Micromet.
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended December 31, 2002 increased by 32% to
$11,305,000, as compared to $8,576,000 in the same period last year. The
increase was primarily due to; (i) increased selling expense related to the
ABELCET acquisition and the sales force we hired from Elan; (ii) increased sales
and marketing costs due to the reacquisition of marketing and distribution
rights for ONCASPAR; and (iii) increased general and administrative personnel
and related costs. These increases were partially offset by a reduction in legal
expense related to the prior year's patent litigation with Nektar Therapeutics,
formally Inhale Therapeutics. During January 2002, we settled our patent
infringement suit with Nektar and entered into a broad based technology
collaboration.
Amortization. Amortization increased by $1,257,000 to $1,328,000 in the six
months ended December 31, 2002 compared to the same period last year as a result
of the intangible assets acquired in connection with the ABELCET acquisition
during the quarter. Amortization of intangible assets is provided over their
estimated lives ranging from 3-15 years on a straight-line basis.
Write-down of Investment. In January 2002, the Company entered into a broad
strategic alliance with Nektar Therapeutics (Nektar) (formerly Inhale
Therapeutic Systems, Inc.) to co-develop products utilizing both companies'
proprietary drug delivery platforms. As a part of this agreement, the Company
purchased $40 million of newly issued Nektar preferred convertible stock which
is currentlyconvertible into Inhale common stock at a conversion price of $22.79
per share. Under the cost method of accounting, investments are carried at cost
and are adjusted only for other-than-temporary declines in fair value,
distributions of earnings and additional investments.
As a result of the continued decline in the price of Nektar's common stock, the
Company determined that the decline in the value of it's investment in Nektar
was other than temporary. Accordingly, during the three months ended December
31, 2002, the Company recorded a write down of the carrying value of its
investment in Nektar, which resulted in a non-cash charge of $27.2 million. The
adjustment was calculated based on an assessment of the fair value of the
investment.
Other Income (Expense). Investment and other income for the six months ended
December 31, 2002 decreased to $7,798,000, as compared to $10,927,000 for the
same period last year. The decrease in interest income was primarily due a
decrease in interest bearing investments due to our payment of $369 million in
connection with our purchase of the ABELCET Product Line from Elan in November
2002 and a decline in interest rates on our investments. This reduction was
offset by approximately $2.1 million in realized gains resulting from the sale
of short term investments sold to fund the ABELCET acquisition. Interest expense
remained relatively unchanged as compared to the same period last year. The
majority of interest expense is related to $400,000,000 in 4.5% convertible
subordinated notes, which were outstanding for both periods.
Income Taxes. During the six months ended December 31, 2002 and 2001 we
recognized a tax provision that represents our anticipated alternative minimum
tax liability based on our anticipated taxable income for the full fiscal year.
Fiscal 2001 had the same minimum tax liability offset by the sale of certain New
Jersey state net operating loss carryforwards.
Liquidity and Capital Resources
Total cash reserves, which include cash, cash equivalents and marketable
securities, were $146,000,000 as of December 31, 2002, as compared to
$485,000,000 as of June 30, 2002. The decrease is primarily due to
14
$369,000,000 paid as a result of the closing of the ABELCET Product Line
acquisition. We invest our excess cash primarily in rated fixed income
securities.
To date, our sources of cash have been the proceeds from the sale of our
stock through public offerings and private placements, the issuance of the 4.5%
convertible subordinated notes, sales and royalties earned on sales of ADAGEN,
ONCASPAR, PEG-INTRON and ABELCET, sales of our products for research purposes,
contract research and development fees, technology transfer and license fees and
royalty advances.
As of December 31, 2002, we had $400,000,000 of 4.5% convertible
subordinated notes outstanding. The notes bear interest at an annual rate of
4.5%. Interest is payable on January 1 and July 1 of each year beginning January
2, 2002. Accrued interest on the notes was approximately $9,000,000 as of
December 31, 2002. The holders may convert all or a portion of the notes into
common stock at any time on or before July 1, 2008. The notes are convertible
into our common stock at a conversion price of $70.98 per share, subject to
adjustment in certain events. The notes are subordinated to all existing and
future senior indebtedness. On or after July 7, 2004, we may redeem any or all
of the notes at specified redemption prices, plus accrued and unpaid interest to
the day preceding the redemption date. The notes will mature on July 1, 2008
unless earlier converted, redeemed at our option or redeemed at the option of
the note holder upon a fundamental change, as described in the indenture for the
notes. Neither we nor any of our subsidiaries are subject to any financial
covenants under the indenture. In addition, neither we nor any of our
subsidiaries are restricted under the indenture from paying dividends, incurring
debt, or issuing or repurchasing our securities.
On December 31, 2002, we entered into an exclusive license agreement for
the right to sell, market and distribute SkyePharma's DEPOCYT(R), an injectable
chemotherapeutic approved for the treatment of patients with lymphomatous
meningitis in the United States and Canada in return for a $12 million license
fee. This license fee is included in accrued expenses in the Consolidated
Condensed Balance Sheet as of December 31, 2002. The payment of the $12 million
license fee will be offset against a $3.5 million technology access fee due from
Skypharma under the strategic alliance agreement we signed on January 2, 2003.
The Company has a capital expenditure commitment for the fiscal year
ending June 30, 2003 of approximately $4.0 million.
As of December 31, 2002, 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 amount 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, 2002 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, 2002, there were accrued and unpaid
dividends totaling $179,000 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 reserves, marketable securities, sales and royalties earned
on sales of ADAGEN, ONCASPAR, PEG-INTRON and ABELCET and 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 and expected cash flow from
operations will be sufficient to meet our capital, debt service and operational
requirements for the foreseeable future.
We may seek additional financing, 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 and potential
acquisitions. We cannot assure you, however, that we will be able to obtain
additional funds on acceptable terms, if at all.
15
Critical Accounting Policies
In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the 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. We believe based on our current business that there are no critical
accounting policies, except for our accounting related to income taxes and cost
method equity investments. Under the asset and liability method of Statement of
Financial Accounting Standards ("SFAS") No. 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. 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. The Company has significant net
deferred tax assets, primarily related to net operating loss carryforwards, and
continues to analyze what level of the valuation allowance is needed. The
Company assesses the carrying value of its cost method investments in accordance
with SFAS No.115 and SEC Staff Accounting Bulletin No.59. An impairment
write-down is recorded when a decline in the value of an investment is
determined to be other-than-temporary. These determinations involve a
significant degree of judgment and are subject to change as facts and
circumstances change.
Recently Issued Accounting Standards
In July 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
This standard supercedes the accounting guidance provided by Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires companies to recognize
costs associated with exit activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company is currently evaluating the effect of this standard on our
consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123, Accounting for Stock-Based Compensation. This Statement amends SFAS No. 123
to provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
this statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements. Certain
of the disclosure modifications are required for fiscal years ending after
December 15, 2002 and for interim periods beginning after December 15, 2002, and
will be included in future filings.
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 available-for-sale
securities. 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
16
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, 2002, all of our holdings were in instruments maturing in four
years or less.
The table below presents the principal amounts and related weighted
average interest rates by year of matuity for our investment portfolio as of
December 31, 2002 (in thousands):
Fair
2003 2004 2005 Total Value
---------------------------------------------------
Fixed Rate $20,050 $21,198 $ 4,712 $45,960 $46,399
Average Interest Rate 2.95% 3.09% 2.30% 2.95% --
Variable Rate -- -- -- -- --
Average Interest Rate -- -- -- -- --
---------------------------------------------------
$20,050 $21,198 $ 4,712 $45,960 $46,399
===================================================
Our 4.5% convertible subordinated notes in the principal amount of
$400,000,000 due July 1, 2008 have fixed interest rates. The fair value of the
notes is affected by changes in interest rates and by changes in the price of
our common stock.
17
PART II OTHER INFORMATION
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date
(the "Evaluation Date") within 90 days prior to the filing date of this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us required to be included in our periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their last evaluation.
18
Item 5. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on December 3, 2002.
(b) The directors elected at the annual meeting were Arthur Higgins and
Dr. Rosina Dixon. The term of office as a director for each of David
S. Barlow, Rolf A. Classon, Dr. David W. Golde, Robert LeBuhn and
Robert L. Parkinson Jr. 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 32,153,528 shares in favor and
1,165,253 shares withheld with respect to the election of
Arthur Higgins as a Class I director of the Company,
32,118,144 shares in favor and 1,200,637 shares withheld with
respect to the election of Dr. Rosina Dixon as a Class I
director of the Company. Broker non-votes were not applicable.
(ii) The stockholders voted 33,121,997 shares in favor, 187,127
against and 9,657 abstained with respect to a proposal to
approve the amendment to the Company's Certificate of
Incorporation to change the name of the Company from "Enzon,
Inc." to "Enzon Pharmaceuticals, Inc." Broker non-votes were
not applicable.
(iii) The stockholders voted 32,513,856 shares in favor and 795,072
against and 9,853 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, 2003. Broker non-votes were not applicable.
19
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(i)(a) Amendment to Certificate of Incorporation ^^^^(A)
3(ii) By laws, as amended ^^(3(ii))
4.1 Indenture dated as of June 26, 2001, between the Company and
Wilmington Trust Company, as trustee, including the form of 4 1/2%
Convertible Subordinated Note due 2008 attached as Exhibit A thereto ++++(4.1)
4.2 Registration Rights Agreement dated as of June 26, 2001, between the
Company and the initial purchasers ++++(4.2)
4.3 Rights Agreement dated May 17, 2002 between the Company and
Continental Stock Transfer Trust Company, as rights agent ^(1)
10.17 Asset Purchase Agreement between the Company and Elan
Pharmaceuticals, Inc., dated as of October 1, 2002 #
10.18 License Agreement between the Company and Elan Pharmaceuticals, Inc.,
dated November 22, 2002 o
10.19 Option Agreement between the Company and Arthur J. Higgins o
10.20 Restricted Stock Agreement between the Company and Arthur J. Higgins o
10.21 Royalty Agreement between the Company and Vivo Healthcare
Corporation, dated as of October 16, 2002 o
10.22 Assignment Agreement between the Company and Vivo Healthcare
Corporation, dated as of October 16, 2002 o
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 o
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 o
o Filed herewith.
++++ Previously filed as an exhibit to the Company's Registration
Statement on Form S-3 (File No. 333-67509) filed with the Commission
and incorporated herein by reference thereto.
^ Previously filed as an exhibit to the Company's Form 8-A (File No.
000-12957) filed with the Commission on May 22, 2002 and
incorporated herein by reference thereto.
^^ Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed with the Commission on May 22, 2002 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, 2002 and incorporated
herein by reference thereto.
^^^^ Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed on December 10, 2002 and incorporated herein by
reference thereto.
# Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed on October 2, 2002 and incorporated herein by
reference thereto.
20
(b) Reports on Form 8-K.
On October 2, 2002, we filed with the Commission a Current Report on Form
8-K dated October 2, 2002 reporting our agreement with Elan Corporation, plc, to
acquire the United States and Canadian rights to ABELCET(R) (Amphotericin B
Lipid Complex Injection).
On November 7, 2002, we filed with the Commission a Current Report on Form
8-K dated November 6, 2002 reporting our financial results for the first quarter
ended September 30, 2002.
On November 22, 2002, we filed with the Commission a Current Report on
Form 8-K dated November 22, 2002 reporting the acquisition of the North American
and Canadian rights to ABELCET(R) (Amphotericin B Lipid Complex Injection).
On December 9, 2002, we filed with the Commission a Current Report on Form
8-K dated November 22, 2002 reporting the completion of our acquisition of the
North American and Canadian rights to ABELCET(R) (Amphotericin B Lipid Complex
Injection).
On December 10, 2002, we filed with the Commission a Current Report on
Form 8-K dated December 10, 2002 reporting the Company's name change from
"Enzon, Inc." to "Enzon Pharmaceuticals, Inc".
On February 7, 2003, we filed with the Commission a Current Report on Form
8-K/A dated November 22, 2002 amending Form 8-K filed on December 9, 2002 to
update and file the financial statements and pro forma financial information.
21
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.
Date: February 14, 2003 ENZON PHARMACEUTICALS, INC.
---------------------------
(Registrant)
By: /s/Arthur J. Higgins
------------------------
Arthur J. Higgins
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2003 By: /s/Kenneth J. Zuerblis
--------------------------------
Kenneth J. Zuerblis
Vice President Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
and Corporate Secretary
22
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Arthur J. Higgins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Enzon
Pharmaceuticals, Inc. and Subsidiaries;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and financial
information included in this quarterly report fairly present, in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
23
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
February 14, 2003 By: /s/Arthur J. Higgins
-----------------------------
Arthur J. Higgins
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
24
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth J. Zuerblis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Enzon
Pharmaceuticals, Inc. and Subsidiaries;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and financial
information included in this quarterly report fairly present, in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
25
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
February 14, 2003 By: /s/Kenneth J. Zuerblis
-----------------------
Kenneth J. Zuerblis
Vice President Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
and Corporate Secretary
26