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 Quarter Ended SEPTEMBER 30, 1995 Commission File No. 0-12957
ENZON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2372868
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 KINGSBRIDGE ROAD, PISCATAWAY, NEW JERSEY 08854
(Address of principal executive offices) (Zip Code)
(908) 980-4500
(Registrant's telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of common stock, $.01 par value, outstanding as of
November 6, 1995 was 26,328,874 shares.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 1995 and June 30, 1995
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
September 30, June 30, September 30, June 30,
1995 1995 1995 1995
1994
(unaudited) * (unaudited) *
Current assets: Current liabilities:
Cash and cash $6,629,128 $8,102,989 Accounts payable $1,654,326$1,561,968
equivalents 2,152,920 2,362,277 Accrued expenses 3,491,7524,045,302
Accounts receivable 719,339 792,453 Other current liabilities due to Sanofi 1,312,829 1,312,829
Inventories 207,860 185,226 Winthrop
Other current assets 6,458,907 6,920,099
Total current liabilities
Total current assets 9,709,247 11,442,945 Accrued rent 1,003,929 1,006,508
Unearned revenue - Rhone-Poulenc Rorer 2,851,914 2,955,841
Other liabilities 3,515
4,076
3,859,358 3,966,425
Property and equipment 15,797,160 15,758,058 Commitments and contingencies
Less accumulated
depreciation 10,464,914 9,968,024 Stockholders' equity:
and amortization
5,332,246 5,790,034 Preferred stock-$.01 par value, authorized
3,000,000 shares;
Other assets: issued and outstanding 109,000 shares at
Investments 78,616 78,616 September 30, 1995 1,0901,090
Other assets, net 52,766 46,627 and June 30, 1995 (liquidation preference
Patents, net 1,785,735 1,825,820 $25 per share
aggregating $2,725,000 at September 30, 263,289 263,289
1,917,117 1,951,063 1995) 111,740,179 111,494,180
Common stock-$.01 par value, authorized (105,364,213)(103,461,041)
40,000,000 shares;
issued and outstanding 26,328,874 shares at
September 30,
1995 and June 30, 1995
Additional paid-in capital
Accumulated deficit
Total stockholders' equity 6,640,345 8,297,518
Total assets $16,958,610 $19,184,042 Total liabilities and stockholders' equity $16,958,610 $19,184,042
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
<PAGE>
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
<S> <C> <C> <C>
September 30, September 30,
1995 1994
Revenues
Sales $2,809,048 $2,057,177
Contract revenue 116,500 1,800,000
Total revenues 2,925,548 3,857,177
Costs and expenses
Cost of sales 964,701 950,559
Research and development expenses 2,690,648 3,356,224
Selling, general and administrative expenses 1,271,970 1,947,337
Total costs and expenses 4,927,319 6,254,120
Operating loss (2,001,771) (2,396,943)
Other income (expense)
Interest and dividend income 102,345 45,746
Interest expense (6,689) (2,770)
Other 2,943 646,346
98,599 689,322
Net loss ($1,903,172) ($1,707,621)
Net loss per common share ($0.07) ($0.07)
Weighted average number of common
shares outstanding during the period 26,328,874 24,724,569
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
<PAGE>
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
<S> <C> <C>
September 30, September 30,
1995 1994
Cash flows from operating activities:
Net loss ($1,903,172) ($1,707,621)
Adjustment for depreciation and amortization 536,975 684,985
Compensation expense for issuance of stock options -31,535
Reserve for shutdown of Enzon Labs Inc. - (14,133)
(Decrease) increase in accrued rent (2,579) 49,325
Decrease in royalty advance - RPR (103,927) -
Changes in assets and liabilities 38,447 (954,418)
Net cash used in operating activities (1,434,256) (1,910,327)
Cash flows from investing activities:
Capital expenditures (39,102) (144,706)
Net cash used in investing activities (39,102) (144,706)
Cash flows from financing activities:
Proceeds from issuance of common stock - 1,020,523
Principal payments of obligations under capital leases (503) (6,241)
Net cash (used in) provided by financing activities (503) 1,014,282
Net decrease in cash and cash equivalents (1,473,861) (1,040,751)
Cash and cash equivalents at beginning of period 8,102,989 5,731,461
Cash and cash equivalents at end of period $6,629,128 $4,690,710
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements have been
prepared from the books and records of Enzon, Inc. and subsidiaries in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) considered necessary for
a fair presentation have been included. Interim results are not necessarily
indicative of the results that may be expected for the year.
(2) NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant period,
adjusted for cumulative undeclared preferred stock dividends of $55,000, for
each of the three month periods ended September 30, 1995 and 1994, divided by
the weighted average number of shares issued and outstanding during the period.
Stock options, warrants and common stock issuable upon conversion of the
preferred stock are not reflected as their effect would be antidilutive for
both primary and fully diluted earnings per share computations.
(3) INVENTORIES
The composition of inventories at September 30, 1995 and June 30, 1995 is
as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
<S> <C> <C>
Raw materials $339,000 $398,000
Work in process 286,000 134,000
Finished goods 94,000 260,000
$719,000 $792,000
</TABLE>
(4) CASH FLOW INFORMATION
The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash payments for
interest were approximately $7,000 and $1,000 for the three months ended
September 30, 1995 and 1994, respectively. There were no income tax payments
made for the three months ended September 30, 1995 and 1994. As part of the
commission due to the real estate broker in connection with termination of the
lease at 40 Kingsbridge Road, the Company issued 150,000 five-year warrants to
purchase the Company's Common Stock at $2.50 per share during the three months
ended September 30, 1995. This transaction is a non-cash financing activity.
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements, Continued
(Unaudited)
(5) NON-QUALIFIED STOCK OPTION PLAN
During the three months ended September 30, 1995, the Company issued
262,000 stock options at an average exercise price of $3.50 under the Company's
Non-Qualified Stock Option Plan (the "Plan"), of which 180,000 were granted to
officers. None of the options granted during the period are exercisable as of
September 30, 1995.
During October 1995, the Company granted an additional 275,000 options to
all non-officer employees at an exercise price of $3.38 per share. All options
were issued at the fair market value of the underlying stock on the date of
grant. The options were granted for the purpose of encouraging the employees
to remain with the Company and to provide a performance incentive. The options
generally require the employees to remain with the Company for two years, in
order for the options to be exercisable.
(6) RESTRUCTURING EXPENSE
During the quarter ended March 31, 1995, the Company recorded a
restructuring charge related to a workforce reduction and the termination of
one of its facility leases. As of September 30, 1995 and June 30, 1995,
approximately $118,000 and $758,000, respectively, of the restructuring charge
was unpaid and recorded in accrued expenses in the Consolidated Condensed
Balance Sheet. The decrease in the accrued restructuring expense during the
three months ended September 30, 1995 was related to the payment of fees due
the Company's real estate broker in connection with the termination of the
lease. The Company anticipates that the unpaid restructuring charge will be
settled prior to December 31, 1995.
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VS. THREE MONTHS ENDED SEPTEMBER 30, 1994
REVENUES. Revenues for the three months ended September 30, 1995 decreased by
24% to $2,926,000 as compared to $3,857,000 for the same period in 1994. The
components of revenues are sales and contract revenues. Sales increased by 37%
to $2,809,000 for the three months ended September 30, 1995 as compared to
$2,057,000 for the same period in the prior year, due to an increase in
patients receiving ADAGEN and increased ONCASPAR revenues from Rhone-Poulenc
Rorer Pharmaceuticals, Inc. ("RPR"). ADAGEN sales for the three months ended
September 30, 1995 and 1994 were $2,175,000 and $1,916,000, respectively.
Contract revenue for the three months ended September 30, 1995 decreased by 94%
to $117,000, as compared to $1,800,000 for the same period in 1994. Recorded
in contract revenue in 1994 was a $1,800,000 payment from Bristol-Myers Squibb
related to the exercise of an option under a license agreement for the
Company's SCA protein technology. During the three months ended September 30,
1995 and 1994, the Company had export sales of $640,000 and $450,000,
respectively.
COST OF SALES. Cost of sales, as a percentage of sales, decreased to 34% for
the three months ended September 30, 1995 as compared to 46% for the same
period in 1994. The decrease was due primarily to a reduction in the cost of
ADAGEN. The decrease in the cost of ADAGEN was due to the elimination of
certain inefficiencies in the filling process experienced during the prior
year.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended September 30, 1995 decreased by 20% to $2,691,000 from $3,356,000
for the same period in 1994. This decrease was primarily due to (i) reductions
in personnel, principally in the clinical and scientific administration areas,
and related costs, such as payroll taxes and benefits, (ii) decreased research
facilities and occupancy costs, and (iii) other cost containment measures taken
by the Company. The decreases in research facility and occupancy costs were
related to the termination of one of the Company's long-term facility leases
and the resulting consolidation of its operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 1995 decreased
by 35% to $1,272,000 from $1,947,000 for the same period in 1994. The decrease
was due to (i) reductions in personnel and related costs, such as payroll taxes
and benefits, (ii) a reduction in facility and occupancy costs and (iii) other
cost containment measures taken by the Company.
OTHER INCOME/EXPENSE. Other income/expense decreased by $590,000 to $99,000
for the three months ended September 30, 1995 as compared to $689,000 for the
same period last year. The decrease in other income-expense for the three
months ended September 30, 1995 was attributable to the one-time insurance
payment recorded in the prior year which was offset, in part, by an increase in
interest income. The increase in interest income was due to an increase in
interest bearing investments during the quarter ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Enzon had $6,629,000 in cash and cash equivalents as of September 30,
1995. The Company invests its excess cash in a portfolio of high-grade
marketable securities and United States government-backed securities.
The Company's cash reserves, as of September 30, 1995, decreased by
$1,474,000 from June 30, 1995. The decrease in cash reserves was principally
caused by the funding of operations.
The Company's exclusive U.S. marketing rights license with RPR for
ONCASPAR provides for a payment of $3,500,000 in advance royalties, which was
received in January 1995. Royalties due under the revised agreement will be
offset against a credit of $5,970,000, which represents the royalty advances
plus reimbursement of certain amounts due RPR under the previous agreement and
interest expense, before cash payments will be made under the agreement. The
royalty advance is shown as a long term liability with the corresponding
current portion included in accrued expenses on the consolidated condensed
balance sheets and will be reduced as royalties are recognized under the
agreement.
The Company's agreement with Sanofi Winthrop Inc. ("Sanofi"), formerly
Sterling Winthrop, Inc., and the Eastman Kodak Company ("Kodak"), requires a
credit to Sanofi for monies not expended for the development of PEG-SOD under
the Company's March 1987 stock purchase agreement with Kodak, pursuant to which
Kodak advanced the Company $9,000,000 to fund all activities to obtain FDA
approval for this product and purchased 2,000,000 shares of the Company's
Common Stock for $6,000,000. The Company believes that under the agreement,
Sanofi may only apply the credit, shown as a current liability in the
consolidated condensed balance sheet, against the purchase of clinical supplies
and the Company has no other obligation to repay the credit to Sanofi. Sanofi
has notified the Company that it does not require future clinical supplies from
the Company and, therefore, the Company has no further obligation under the
agreement to supply PEG-SOD to Sanofi.
As of September 30, 1995, 940,808 shares of Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") had been converted
into 3,093,411 shares of Common Stock. Accrued dividends on the converted
Series A Preferred Stock in the aggregate of $1,792,000 were settled by the
issuance of 232,383 shares of Common Stock. The Company does not presently
intend to pay cash dividends on the Series A Preferred Stock. As of September
30, 1995, there were $1,204,000 of accrued and unpaid dividends on the Series A
Preferred Stock. Dividends accrue on the outstanding Series A Preferred Stock
at the rate of $218,000 per year.
To date, the Company's sources of cash have been the proceeds from the
sale of its stock through public and private placements, sales of ADAGEN, sales
of ONCASPAR, sales of its products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances.
The Company's current sources of liquidity are its cash, cash equivalents and
interest earned on such cash reserves, sales of ADAGEN, sales of ONCASPAR,
sales of its products for research purposes and license fees. Management
believes that its current sources of liquidity will be sufficient to meet its
anticipated cash requirements through at least fiscal year end 1996.
Upon exhaustion of the Company's current cash reserves, the Company's
continued operations will depend on its ability to realize significant revenues
from the commercial sale of its products, raise additional funds through equity
or debt financing, or obtain significant licensing, technology transfer or
contract research and development fees. There can be no assurance that these
sales, financings or revenue generating activities will be successful.
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Page Number or
Incorporation BY
Exhibit REFERENCE
NUMBER DESCRIPTION
<S> <C> <C>
1.1 Form of Third Amended and Restated Purchase Agreement by and between
the Company and Susquehanna Brokerage Services, Inc. dated as of June ##(1.1)
24, 1994
4.0 Certificate of Designation for the Series A Cumulative Convertible
Preferred Stock filed with the Secretary of State of Delaware *(4.0)
10.0 Employment Agreement dated March 25, 1994 with Peter G. Tombros #(10.17)
10.1 Termination Agreement and General Release dated May 17, 1994 with ###(10.3)
Edward Ehrenberg
10.2 Form of Change of Control Agreements dated as of January 20, 1995
entered into with the Company's Executive Officers ~(10.2)
10.3 Lease - 300-C Corporate Court, South Plainfield, New Jersey
***(10.3)
10.4 Modification of Lease - 300-C Corporate Court, South Plainfield New
Jersey ++(10.3)
10.5 Lease Termination Agreement dated March 31, 1995 for 20 Kingsbridge
Road and 40 Kingsbridge Road, Piscataway, New Jersey ~(10.6)
10.6 Option Agreement dated April 1, 1995 regarding 20 Kingsbridge Road,
Piscataway, New Jersey ~(10.7)
10.7 Lease - 20 Kingsbridge Road, Piscataway, New Jersey ~(10.8)
10.8 Form of Lease - 40 Cragwood Road, South Plainfield, New Jersey ****(10.9)
10.9 Lease 300A-B Corporate Court, South Plainfield, New Jersey (10.10)
10.10 Stock Purchase Agreement dated March 5, 1987 between the Company and
Eastman Kodak Company ****(10.7)
10.11 Amendment dated June 19, 1989 to Stock Purchase Agreement between the
Company and Eastman Kodak Company **(10.10)
10.12 Form of Stock Purchase Agreement between the Company and the purchasers
of the Series A Cumulative Convertible Preferred Stock +(10.11)
10.13 Amendment to License Agreement and Revised License Agreement between
the Company and RCT dated April 25, 1985 +++(10.5)
10.14 Amendment dated as of May 3, 1989 to Revised License Agreement dated
April 25, 1985 between the Company and Research Corporation **(10.14)
10.15 License Agreement dated September 7, 1989 between the Company and
Research Corporation Technologies, Inc. **(10.15)
10.16 Master Lease Agreement and Purchase Leaseback Agreement dated October
28, 1994 between the Company and Comdisco, Inc. ####(10.16)
10.17 Amendment dated as of May 15, 1995 to Employment Agreement with Peter ~~(10.17)
G. Tombros
27.0 Financial Data Schedule E-1
</TABLE>
* 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, 1992 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 Current Report on Form 8-
K dated April 5, 1994 and incorporated herein by reference thereto.
## Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (File No. 33-80790) 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, 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, 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 March 31, 1995 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, 1995 and incorporated herein by
reference thereto.
(b) Reports on Form 8-K
None
<PAGE>
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: November 13, 1995 By:/S/ PETER G. TOMBROS
Peter G. Tombros
President and Chief Executive
Officer
By:/S/ KENNETH J. ZUERBLIS
Kenneth J. Zuerblis
Vice President, Finance
(Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Enzon,
Inc. and Subsidiaries Consolidated Condensed Balance Sheet as of September 30,
1995 and the Consolidated Condensed Statement of Operations for the three months
ended September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 6,629,128
<SECURITIES> 0
<RECEIVABLES> 2,152,920
<ALLOWANCES> 0
<INVENTORY> 719,339
<CURRENT-ASSETS> 9,709,247
<PP&E> 15,797,160
<DEPRECIATION> 10,464,914
<TOTAL-ASSETS> 16,958,610
<CURRENT-LIABILITIES> 6,458,907
<BONDS> 0
<COMMON> 263,289
0
1,090
<OTHER-SE> 6,375,966
<TOTAL-LIABILITY-AND-EQUITY> 16,958,610
<SALES> 2,809,048
<TOTAL-REVENUES> 2,925,548
<CGS> 964,701
<TOTAL-COSTS> 4,927,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,689
<INCOME-PRETAX> (1,903,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,903,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,903,172)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
