UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Commission
For the fiscal year ended JUNE 30, 1995File Number 0-12957
ENZON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2372868
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
20 KINGSBRIDGE ROAD, PISCATAWAY, NEW JERSEY 08854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 980-4500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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 if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the Common Stock, par value $.01 per share,
held by non-affiliates based upon the reported last sale price of the Common
Stock on September 15, 1995 was approximately $96,025,000. There is no market
for the Series A Cumulative Convertible Preferred Stock, the only other class
of voting stock.
As of September 15, 1995, there were 26,328,874 shares of Common Stock,
par value $.01 per share, outstanding.
The Index to Exhibits appears on page 25.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on December 5, 1995, to be filed with the
Commission not later that 120 days after the close of the registrant's fiscal
year, has been incorporated by reference, in whole or in part, into Part III
Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.
ENZON, INC.
1995 Form 10-K Annual Report
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 19
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management 24
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 24
The following trademarks and service marks appear in this Annual Report:
ADAGEN and ONCASPAR are registered trademarks of Enzon, Inc.; PEGNOLOGY
is a registered service mark of Enzon, Inc.; SCA is a trademark of Enzon
Labs Inc.; DISMUTEC is a trademark of Sanofi Winthrop, Inc.; Elspar is a
registered trademark of Merck & Co., Inc; Erwinase is a registered
trademark of Porton Products Limited; INTRON A is a registered trademark
of Schering Corporation; BABS is a trademark of Creative BioMolecules,
Inc.; and CEREDASE is a trademark of Genzyme Corporation.
PART I
ITEM 1. BUSINESS
OVERVIEW
Enzon, Inc. ("Enzon" or the "Company") is a biopharmaceutical company
that develops, manufactures and markets enhanced therapeutics for
life-threatening diseases through the application of its proprietary
technologies, PEG Modification or the PEG Process and Single-Chain
Antigen-Binding (SCA) proteins. The Company is primarily engaged in the
research, development and commercialization of its proprietary technologies in
the areas of blood substitutes, genetic diseases and oncology.
The Company has received marketing approval from the United States Food
and Drug Administration ("FDA") for two of its products: (i) ONCASPAR, approved
in February 1994 for the indication of acute lymphoblastic leukemia ("ALL") in
patients who are hypersensitive to native forms of L-asparaginase and (ii)
ADAGEN, the first successful application of enzyme replacement therapy for an
inherited disease, approved in March 1990 to treat a rare form of Severe
Combined Immunodeficiency Disease ("SCID"), commonly known as the Bubble Boy
Disease.
The Company manufactures both ADAGEN and ONCASPAR in its South
Plainfield, New Jersey facility and markets ADAGEN on a worldwide basis.
ONCASPAR is marketed in the U.S. by Rhone-Poulenc Rorer Pharmaceuticals, Inc.
("RPR"). The Company received $6,000,000 from RPR related to the granting of
this license (of which $500,000 and $5,500,000 were paid to the Company during
the fiscal years ended June 30, 1995 and 1994, respectively). Under the
license, which was amended in January 1995, the Company is also entitled to
royalties on the sales of ONCASPAR in the U.S. by RPR of 10% to 23.5% in 1995
and 23.5% to 43.5%, thereafter, based on the sales level of ONCASPAR. During
1995, RPR paid the Company $3,500,000 in advance royalties. Royalties due
under the RPR agreement will be offset against a credit of $5,970,000, which
represents the royalty advance plus reimbursement of certain amounts due RPR
under the original agreement and interest expense. The Company has also
granted exclusive licenses to sell ONCASPAR in Canada and Mexico to RPR in
exchange for royalty payments on future sales. The Company is currently
pursuing additional licenses for marketing and distribution rights outside
North America. During November 1994, ONCASPAR was approved in Germany for use
in patients with ALL who are hypersensitive to natural forms of L-asparaginase.
ONCASPAR is the enzyme L-asparaginase modified by the PEG Process and
ADAGEN is the enzyme adenosine deaminase modified by the PEG Process. The PEG
Process involves chemically attaching polyethylene glycol ("PEG"), a relatively
non-reactive and non-toxic polymer, to proteins and certain other
pharmaceuticals for the purpose of enhancing their therapeutic value.
Attachment of PEG helps to disguise the proteins and to reduce their
recognition by the immune system, thereby generally lowering potential
immunogenicity. Both the increased molecular size and lower immunogenicity
result in extended circulating blood life, in some cases from minutes to days.
In addition to its approved products, the Company is conducting research
and developing additional drugs. In the blood substitutes area, the Company
has undertaken the development of a hemoglobin based oxygen carrier, utilizing
the protein hemoglobin modified by the PEG Process. In addition to its use as a
blood substitute, the Company's product PEG-hemoglobin, may act as a
radiosensitizer in cancer therapy. Enzon has chosen to base PEG-hemoglobin on
bovine hemoglobin, due to its superior oxygen-carrying properties, relative
stability, availability and low cost. The Company is currently conducting a
Phase I clinical trial in healthy volunteers and has administered PEG-
hemoglobin to 28 subjects up to a dose of approximately 45 grams or the
equivalent of approximately 1.5 units of whole blood. The Company is compiling
the results of this trial for submission to the FDA. The Company plans to
conduct future clinical trials utilizing PEG-hemoglobin in patients receiving
radiation treatment for solid hypoxic tumors and as a blood substitute
(resuscitation fluid) for trauma patients. The Company is discussing the
protocols for these trials with the FDA. The Company currently manufactures
and plans to manufacture PEG-hemoglobin for future trials in a pilot plant
facility located in South Plainfield, New Jersey.
In the area of genetic diseases, the Company's lead product under
development is a PEG-modified version of the enzyme glucocerebrosidase to treat
Gaucher disease, a genetic disorder that results in the lack of beta-
glucocerebrosidase, an enzyme instrumental in the breakdown and disposal of
complex fatty substances in the bloodstream. These substances then accumulate
in the spleen, liver and bone marrow, resulting in anemia, weakened bones,
enlargement of the spleen and liver and sometimes early death. An estimated
15,000 people suffer from Gaucher disease in the United States, of whom 2,000
to 3,000 require medical attention. During September 1994, the Company began a
Phase I clinical trial in Gaucher patients. Currently, two patients are
enrolled in this trial and additional patients are anticipated to be added when
clinical trial material becomes available.
The Company has several products under development in the area of
oncology which are all in the early research stage. These products include
PEG-modified anti-cancer compounds and a novel chemical compound.
The Company is pursuing a dual strategy for commercializing its
proprietary technologies. In addition to developing, manufacturing and
marketing the Company's proprietary products, the Company has established
strategic alliances in which Enzon licenses its proprietary technologies in
exchange for milestone payments, manufacturing revenues and/or royalties.
The Company licensed exclusive worldwide marketing rights to Sanofi
Winthrop Inc. ("Sanofi"), formerly Sterling Winthrop, Inc., for PEG-Superoxide
dismutase ("PEG-SOD"), which is the enzyme superoxide dismutase ("SOD")
modified by the PEG Process. SOD destroys oxygen free radicals that may damage
tissue during reperfusion associated with myocardial infarction, organ
transplant and trauma. Generally, Enzon will be entitled to 40% of the net
profits from sales of PEG-SOD in the United States during the life of the basic
U.S. PEG patent covering this product, with agreed-upon limits on the amount of
expenses that can be deducted by Sanofi from revenues before calculating the
profit split. Sanofi is presently developing PEG-SOD, which it has trademarked
as DISMUTEC, for closed head trauma. Sanofi has advised the Company that it is
currently conducting an expanded Phase III clinical trial on PEG-SOD, which is
expected to be completed during the fourth quarter of 1995. A smaller, double
blind, Phase III study with approximately 460 patients has been completed.
This study showed that patients receiving DISMUTEC showed 18% and 16% relative
improvement in favorable neurological outcomes compared to patients receiving a
placebo, three and six months after injury, respectively. Published sources
indicate that the FDA has granted PEG-SOD "fast track" status in the FDA's new
drug approval process. The Company and Research Corporation Technologies Inc.
("RCT") signed agreements seeking to extend the PEG patent for this product.
See "Research Corporation License Agreements".
The Company is also developing a PEG version of a Schering Corporation
("Schering") product, INTRON A (interferon alfa 2b). During the fiscal year
ended June 30, 1995, the Company amended its agreement with Schering and agreed
to transfer proprietary know-how and manufacturing rights to Schering for
$3,000,000, of which $2,000,000 was received during the fiscal year ended June
30, 1995. The Company also sold to Schering, 847,000 shares of unregistered,
newly issued Common Stock for gross proceeds of $2,000,000. The Company is
also entitled to additional payments of approximately $5,550,000, subject to
the achievement of certain milestones in the product's development, and
royalties on worldwide sales of PEG INTRON A, if any. The Company has the
option, upon FDA approval, to be Schering's exclusive manufacturer of PEG
INTRON A for the U.S. market.
The Company has an extensive licensing program for its SCA technology.
SCA proteins are genetically engineered proteins designed to overcome the
problems hampering the diagnostic and therapeutic use of conventional
monoclonal antibodies. Pre-clinical studies have shown that SCA proteins
target and penetrate tumors more readily than conventional monoclonal
antibodies. Currently, there are five SCA proteins in Phase I clinical trials
by various organizations, including a product developed by the Company, SCA-
CC49. The Company believes these organizations will have to obtain a license
from the Company under its SCA patents to commercialize these products. See
"Patents". The Company believes that SCA proteins may be useful in the
development of therapeutics in the area of oncology.
The Company has granted SCA licenses to six companies, including Bristol-
Myers Squibb, Inc. ("Bristol-Myers"), Baxter Healthcare Corporation ("Baxter")
and Eli Lilly & Co. ("Eli Lilly"). These licenses generally provide for
upfront payments, milestone payments and royalties on sales of FDA approved
products.
PRODUCTS ON THE MARKET
The Company currently has two products on the market, ONCASPAR and
ADAGEN. The Company received marketing approval from the FDA for ONCASPAR in
February 1994 and for ADAGEN in March 1990.
ONCASPAR
ONCASPAR, the enzyme L-asparaginase modified by the PEG Process, is used
in conjunction with other chemotherapeutics to treat patients with ALL who are
hypersensitive (allergic) to native (unmodified) forms of L-asparaginase.
L-asparaginase is an enzyme which depletes the amino acid asparagine, a
non-essential amino acid upon which certain leukemic cells are dependent for
survival. Accordingly, the depletion of plasma asparagine levels selectively
starves these leukemic cells. L-asparaginase is a component of standard
pediatric ALL remission induction therapies. Unmodified L-asparaginase is
currently marketed as Elspar. Erwinase, another form of unmodified
L-asparaginase, is also available in the United States on a compassionate use
basis, but is not FDA approved.
The therapeutic value of unmodified L-asparaginase is limited by two
inherent features of the enzyme. First, its short half-life in blood (less than
1.5 days) requires every-other-day injections, causing significant discomfort
and inconvenience to patients. Secondly, the enzyme's non-human source makes
it inherently immunogenic, resulting in a high incidence of allergic reactions,
some of which may be severe, necessitating the discontinuance of the
L-asparaginase therapy.
Through PEG Modification, Enzon believes ONCASPAR offers significant
therapeutic advantages over unmodified L-asparaginase. Namely, ONCASPAR has a
significantly increased half-life in blood (greater than five days), allowing
every-other-week administration, making its use more tolerable to patients than
unmodified L-asparaginase. PEG Modification also disguises the enzyme's foreign
nature, generally reducing its immunogenicity, and accordingly, the incidence
of allergic reactions.
ONCASPAR was launched in the United States by RPR during March 1994. The
Company has granted RPR an exclusive license ("the RPR License Agreement") in
the United States to sell ONCASPAR, and any other PEG-asparaginase product (the
"Product") developed by Enzon or RPR during the term of the License Agreement.
Under this agreement, Enzon is entitled to licensing payments totaling
$6,000,000, of which $500,000 and $5,500,000 were paid during the fiscal years
ended June 30, 1995 and 1994, respectively. During January 1995, the Company
amended the RPR License Agreement. Under the amended RPR License Agreement,
Enzon will earn a base royalty of 10% for the year ending December 31, 1995 and
23.5% thereafter, until 2008, on net sales of ONCASPAR up to agreed upon
amounts, as opposed to 50% of net profits under the original agreement.
Additionally, Enzon will earn a super royalty of 23.5% for the year ending
December 31, 1995 and 43.5% thereafter, until 2008, on net sales of ONCASPAR
which exceed the agreed upon amounts, with the limitation that the total
royalties earned for any such year shall not exceed 33% of net sales. The
revision eliminates RPR's requirement to make certain minimum advertising,
promotional and clinical expenditures. Future decisions regarding clinical
development will be at RPR's discretion. The amended RPR License Agreement
also provides for a payment of $3,500,000 in advance royalties, which was
received in January 1995.
The payment of base royalties to Enzon under the amended RPR License
Agreement will be offset by a credit of $5,970,000, which represents the
royalty advance plus reimbursement of certain amounts due to RPR under the
original RPR License Agreement and interest expense. Super royalties will be
paid to the Company when earned. The royalty advance is shown as a long term
liability, with the corresponding current portion included in accrued expenses
on the Consolidated Balance Sheet as of June 30, 1995. The royalty advance
will be reduced as base royalties are recognized under the agreement.
The amended RPR License Agreement prohibits RPR from selling a competing
PEG-asparaginase product anywhere in the world during the term of such
agreement and for five years thereafter. The amended RPR License Agreement
terminates in December 2008, subject to early termination by either party due
to a default by the other or by RPR at any time on one year's prior notice to
Enzon. Upon any termination all rights under the amended RPR License Agreement
revert to Enzon.
The Company has also granted exclusive licenses to sell ONCASPAR in
Canada and Mexico to RPR. These agreements provide for RPR to obtain marketing
approval of ONCASPAR in Canada and Mexico and for the Company to receive
royalties on sales of ONCASPAR in these countries, if any. The Company is
currently pursuing other licenses for marketing and distribution rights for
ONCASPAR outside North America. A separate supply agreement with RPR requires
RPR to purchase from Enzon all of RPR's requirements for the Product for sales
in North America.
In November 1994, the Company received approval in Germany for
therapeutic use of ONCASPAR in patients with ALL who are hypersensitive to
natural forms of L-asparaginase. The Company is currently not selling ONCASPAR
in Germany. The Company is pursuing marketing and distribution agreements in
countries outside of North America, including Germany.
ADAGEN
ADAGEN, the Company's first FDA approved product, is currently being used
to treat 43 patients in six countries. ADAGEN represents the first successful
application of enzyme replacement therapy for an inherited disease. ADAGEN's
Orphan Drug designation under the Orphan Drug Act provides the Company with
marketing exclusivity in the United States through March 1997.
ADAGEN, the enzyme adenosine deaminase ("ADA") modified through the PEG
Process, was developed by the Company for the treatment of ADA deficiency
associated with SCID. Commonly known as the "bubble boy" disease, SCID is a
congenital disease that results in children being born without fully
functioning immune systems, leaving them susceptible to a wide range of
infectious diseases. Injections of unmodified ADA would not be effective
because of its short circulating blood life (less than thirty minutes) and the
potential for immunogenic reactions to a bovine-sourced enzyme. The attachment
of PEG to ADA allows ADA to achieve its full therapeutic effect by increasing
its circulating life and masking the ADA to avoid immunogenic reactions.
ADAGEN is being marketed on a worldwide basis and sold in the United
States by the Company. Distribution of ADAGEN in Europe is being handled by a
European firm. Enzon believes many newborns with ADA-deficient SCID go
undiagnosed, and is therefore focusing its marketing efforts for ADAGEN on new
patient identification. Its marketing efforts include targeted advertising,
educational presentations and publications designed to encourage early
diagnosis and subsequent ADAGEN treatment.
Sales of ADAGEN for the fiscal years ended June 30, 1995, 1994 and 1993
were $8,305,000, $7,601,000, and $5,788,000, respectively. Sales of ADAGEN are
expected to continue to be limited due to the small patient population
worldwide.
RESEARCH AND DEVELOPMENT
The Company's primary source of new products is its internal research and
development activities. Research and development expenses for the fiscal years
ended June 30, 1995, 1994 and 1993 were approximately $12,084,000, $17,665,000,
and $17,710,000, respectively. During fiscal 1995, research and development
expenses were divided as follows: 17% for research; 42% for clinical and
regulatory affairs; and 41% for pre-clinical activities.
The Company's research and development activities during fiscal 1995
concentrated primarily on the continued development of two products,
PEG-hemoglobin and PEG-glucocerebrosidase. These activities related
principally to Phase I clinical testing, scale up and process development and
pre-clinical testing. Research and development activities also included early
stage development of several oncology products and enhancements to the
Company's proprietary technologies.
TECHNOLOGIES AND CAPABILITIES
PEG-MODIFICATION
Enzon's proprietary technology, PEG Modification or the PEG Process,
involves chemically attaching PEG to proteins and certain other
pharmaceuticals. PEG is a relatively non-reactive and non-toxic polymer
typically used in many food and drug products. Attachment of PEG disguises the
proteins, and reduces their recognition by the immune system, thereby generally
lowering potential immunogenicity and extending their circulating life, in some
cases from minutes to days. Enzon believes that proteins modified by the PEG
Process may offer significant advantages over their unmodified forms. These
advantages include: (i) extended circulating life, (ii) reduced incidence of
allergic reactions, (iii) reduced dosages with corresponding lower toxicity
without diminished efficacy, (iv) increased drug stability, and (v) enhanced
drug solubility. Modification of proteins with the PEG Process often causes
these proteins to have characteristics which significantly improve their
therapeutic performance, and in some cases enables proteins to be
therapeutically effective which, in their unmodified forms, have proven to be
unacceptably toxic or non-efficacious.
The Company and its senior scientists have developed proprietary know-how
which significantly improves the PEG Process over that described in the
original patent covering this technology. This proprietary know-how enables
the Company to tailor the PEG Process in order to produce the targeted results
for the particular substance being modified. This know-how includes, among
other things, proprietary linkers for the attachment of PEG to the protein, the
selection of the appropriate attachment sites on the surface of the protein,
and the amount and type of PEG used. The Company has filed patent applications
and has received patents for numerous improvements to the PEG Process. See
"Patents".
SINGLE-CHAIN ANTIGEN-BINDING (SCA) PROTEINS
Enzon's proprietary SCA proteins are genetically engineered proteins
designed to overcome the problems associated with the therapeutic uses of
monoclonal antibodies. SCA proteins have the binding specificity and affinity
of monoclonal antibodies, but Enzon believes that SCA proteins offer at least
five significant advantages over conventional monoclonal antibodies: (i)
greater tumor penetration for cancer imaging and therapy, (ii) more specific
localization to target sites in the body, (iii) a significant decrease in the
immunogenic problems associated with monoclonals due to the SCA protein's small
size and rapid clearance from the body, (iv) easier and more cost effective
scale-up for manufacturing, and (v) enhanced screening capabilities which allow
for the testing of SCA proteins for desired specificities using simple
screening methods.
Enzon's research and development capabilities for engineering SCA
proteins include: (i) using computer modeling to design linker peptides to
connect the two protein chains, and (ii) linking the two protein chains that
make up the antigen-binding region of a natural antibody with such designed
peptides, producing a single-chain protein that preserves the structural and
functional integrity of the binding region. The resulting protein chain is
approximately one-sixth the size of a natural antibody. The SCA protein has a
binding specificity and affinity nearly identical to that of a single binding
region of the monoclonal antibody from which the SCA protein was derived.
The binding specificity of SCA proteins has been demonstrated through the
preparation and in vitro testing of more than a dozen different SCA proteins by
Enzon. In addition, the Company, in collaboration with Dr. Jeffrey Schlom of
the Laboratory of Tumor Immunology and Biology at the National Cancer Institute
("NCI"), has shown in published pre-clinical studies that SCA proteins localize
to specific tumors and rapidly penetrate the tumors.
The Company intends to commercialize its SCA protein technology by
licensing the technology to other companies. To date, the Company has granted
SCA licenses to six companies, including Bristol-Myers, Baxter and Eli Lilly.
These licenses generally provide for upfront payments, milestone payments and
royalties on sales of FDA approved products. See "Strategic Alliances and
License Agreements".
Currently, there are five SCA proteins in Phase I clinical trials by
various organizations, including a product developed by the Company, SCA-CC49.
The Company believes these organizations will have to obtain a license from the
Company to commercialize these products.
PRODUCTS UNDER DEVELOPMENT
Enzon's development of its proprietary products is focused in three major
areas: (i) blood substitutes, (ii) genetic diseases, and (iii) oncology.
BLOOD SUBSTITUTES
HEMOGLOBIN BASED OXYGEN CARRIER
The main function of human blood is to transport and deliver oxygen
throughout the body. Between 12 and 14 million units of donated human blood
are transfused to patients suffering from acute blood loss each year in the
United States. Without this source, many surgical and trauma patients would be
at high risk for mortality. Also, the use of donated blood, while effective in
supplying oxygen to patients suffering from acute blood loss, has several
limitations: (i) donated blood spoils in an hour or two if not refrigerated,
(ii) transfused blood can only be used in patients having a compatible blood
type, and (iii) donor blood can cause mortal risk of its own due to
contamination by blood borne diseases which are difficult to detect and for
which there may be a delay between exposure and detectability. Such viruses
include hepatitis and Human Immunodeficiency Virus ("HIV") which causes AIDS.
Delays in treatment of patients resulting from the need to type donated blood
before transfusion, limited supply of certain types of blood and the relatively
short shelf life of donor blood, limits the availability of donated blood for
treatment of patients with acute blood loss.
Currently, there is no commercially available blood substitute that
addresses these problems. Products that could be used as adjuncts or
alternatives to the transfusion of red blood cells obtained from human donors
have been under development for many years. One developmental approach has
utilized hemoglobin derived from red blood cells. Hemoglobin is the oxygen-
carrying component of the red blood cell.
Enzon has undertaken the development of PEG-hemoglobin, a hemoglobin
based oxygen carrier, which the Company believes can be developed with product
specifications consistent with FDA guidelines and which can be commercialized
on a cost effective basis. The Company's goals for its blood substitute
program include the development of a product which (i) sufficiently binds and
delivers oxygen in required quantities during, or after, blood loss, (ii)
achieves FDA standards of purity and homogeneity, (iii) is safe, and (iv) is
cost effective and convenient to use.
Hemoglobin by itself is very toxic and has a short circulation life.
Many of the undesirable effects historically associated with hemoglobin based
blood substitutes, such as vasoconstriction, kidney dysfunction, liver
dysfunction and gastrointestinal distress are a result of these properties.
The Company believes that hemoglobin, modified through its PEG Process, will
overcome the well-documented problems of toxicity and short circulating blood
life associated with other forms of blood substitutes that have been developed.
Enzon has chosen to develop PEG-hemoglobin utilizing bovine hemoglobin, based
upon its superior oxygen-carrying properties, relative stability, availability
and low cost.
In addition to PEG-hemoglobin's potential usefulness as an oxygen carrier
in such indications as trauma and elective surgery, recent pre-clinical studies
suggest that PEG-hemoglobin may act as a radiosensitizer in cancer therapy. In
1994, the FDA published a paper entitled "Points to Consider in the Development
of a Hemoglobin-Based Oxygen Carrier" that discusses the problems associated
with determining clinical endpoints that will demonstrate efficacy of a
hemoglobin-based oxygen carrier. The paper recommends the following
indications that will simplify such endpoints: regional perfusion
(radiosensitization), acute hemorrhagic shock and perioperative applications.
The endpoint used for radiosensitization (regional perfusion) will be the same
as the endpoints established for cytotoxic agents, a reduction in tumor size.
Approximately 800,000 patients in the U.S. each year are diagnosed with solid
hypoxic tumors, such as head and neck, lung, mammary, colon, prostate, bladder,
fibrous histiocytoma, brain metastases and glioma. Pre-clinical testing
suggests that multiple doses of PEG-hemoglobin have delivered oxygen to solid
hypoxic tumors, thereby enhancing the effects of radiotherapy (radiation) which
significantly decreased the size of the tumor.
The Company is currently conducting a Phase I clinical trial in healthy
volunteers and has administered PEG-hemoglobin to 28 subjects up to a dose of
approximately 45 grams or the equivalent of approximately 1.5 units of whole
blood. The Company is compiling the results of this trial. The Company plans
to conduct future clinical trials in patients receiving radiation treatment for
solid hypoxic tumors and as a blood substitute (resuscitation fluid) in trauma
patients. The Company is currently discussing the protocols for these trials
with the FDA. The Company anticipates that patients receiving radiation
treatment will receive multiple doses of PEG-hemoglobin of less than 1.5 units
per dose over the course of treatment.
Successful commercialization of an artificial blood substitute will
require an adequate supply of raw material. The Company's main competitors in
the development of a hemoglobin based oxygen carrier utilize either outdated
human blood or recombinant hemoglobin produced through fermentation. Each
source of hemoglobin has various problems associated with it. The use of
outdated human donor blood relies on a hemoglobin source which is at risk, both
in terms of safety and supply availability. In the case of non-human or mutant
(genetically engineered) hemoglobin, there is a risk of eliciting an
immunogenic or allergic response to what the body considers to be a foreign
protein. The Company believes that the use of genetic engineering techniques
to produce a safe hemoglobin in commercial quantities will require the
development of manufacturing capabilities which to date have generally not been
demonstrated. The Company's product utilizes bovine (cow) hemoglobin, which
can be obtained at relatively low cost. The Company currently obtains its raw
hemoglobin from a small herd of cattle which is isolated from other animals and
receives constant veterinary care and testing, which should insure that the
herd remains disease free. In addition to keeping the herd virus free, the
Company's manufacturing process provides or will provide virus removal,
inactivation and filtration steps. Enzon believes it can supply the potential
market demand for PEG-hemoglobin through a relatively small number of animals.
In addition to the benefit of eliminating the possibility of disease
transmissions, the Company believes that PEG-hemoglobin overcomes the
limitation of donor blood with regard to compatibility. The benefits of
universal compatibility include the ability to use PEG-hemoglobin before a
patient blood type is determined, which eliminates problems associated with
mistakes in blood typing, which could result in mortality. PEG-hemoglobin also
has advantages over donated blood in shelf life. PEG-hemoglobin's
unrefrigerated shelf life (25<circle>c) is approximately seven days, as
compared to hours for whole blood. PEG-hemoglobin also has a frozen shelf life
(-20<circle>c) in excess of 18 months and is ready to use immediately after
thawing.
The Company uses a proprietary process for the separation of and
purification of the bovine hemoglobin and the attachment of PEG to the
hemoglobin molecule.
Enzon presently produces PEG-hemoglobin in a pilot plant at its
facilities in South Plainfield, New Jersey. This plant is expected to supply
the quantities of PEG-hemoglobin needed for all ongoing research and
development through Phase II clinical trials.
The Company estimates that development of a PEG-hemoglobin product will
take several years and require substantial additional funds. There can be no
assurance that a PEG-hemoglobin product can be successfully developed and
brought to market. Due to the significant costs associated with the
development and marketing of a blood substitute product, the Company is
currently exploring potential collaborative arrangements with one or more
established pharmaceutical companies. To date, no such agreements have been
concluded and there can be no assurance that any such agreements will be
consummated. Furthermore, there can be no assurance of market acceptability of
a hemoglobin-based oxygen carrier produced from bovine hemoglobin.
GENETIC DISEASES
There are diseases which are due solely to genetic defects or inborn
errors of metabolism resulting in certain enzyme deficiencies, such as SCID,
Gaucher disease and Fabry's disease. The Company believes that the PEG Process
can be used to successfully replace essential enzymes which patients are
lacking as a result of such genetic disorders. The PEG Process has made enzyme
replacement therapy a viable option for the treatment of genetic diseases.
PEG-GLUCOCEREBROSIDASE
The Company is developing a treatment for Gaucher disease by applying the
PEG Process to a recombinant form of glucocerebrosidase licensed on an
exclusive basis from the National Institutes of Health ("NIH"). Gaucher
disease is a genetic disorder that results in the lack of beta-
glucocerebrosidase, an enzyme instrumental in the breakdown and disposal of
complex fatty substances in the bloodstream. These substances then accumulate
in the spleen, liver and bone marrow, resulting in anemia, weakened bones,
enlargement of the spleen and liver and sometimes early death. An estimated
15,000 people suffer from Gaucher disease in the United States, of whom 2,000
to 3,000 require medical attention. Genetically-engineered glucocerebrosidase
is designed to replace the missing enzyme. Enzon and scientists at the
National Institute of Mental Health, a division of the NIH, have been working
on a PEG-modified version of glucocerebrosidase under a November 1991
Cooperative Research and Development Agreement ("CRADA"). During September
1994, the Company began a Phase I clinical trial in Gaucher patients.
Currently, two patients are enrolled in this trial and additional patients are
anticipated to be added when clinical trial material becomes available.
ONCOLOGY
The Company has several products under development in the area of
oncology, all of which are in the early research stage. These products include
PEG modified anti-cancer compounds and a novel chemical compound.
STRATEGIC ALLIANCES AND LICENSE AGREEMENTS
Enzon develops and manufactures, under joint arrangements with other
pharmaceutical and biopharmaceutical companies, protein-based products
utilizing its proprietary PEG and SCA technologies. Enzon believes that its
technologies can be used to improve products which are already on the market or
that are under development, thus producing therapeutic products which will
provide a safer, more effective and more convenient therapy.
Enzon's agreements with its strategic alliance partners provide, in most
cases, for Enzon's partners to pay the costs of development, clinical testing,
obtaining regulatory approval and commercialization of the products. The
alliance partner receives marketing rights, and in some cases manufacturing
rights, to the products developed. Enzon receives milestone payments,
manufacturing revenues and/or royalty payments based on product sales. The
following is a list of certain of the Company's strategic alliance partners:
<TABLE>
<CAPTION>
<C> <C> <C>
CORPORATE PARTNER AGREEMENT DATE PRODUCT DISEASE OR INDICATIONPROGRAM STATUS
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C>
Sanofi Winthrop, Inc. June 1989 PEG-SOD Closed Head Phase III
(formerly Sterling Winthrop, Inc.) Injury Clinical Trials
Schering Corporation November 1990/ PEG-INTRON A Various Phase I
June 1995 Clinical Trials
Baxter Healthcare CorporationNovember 1992 SCA proteins Cancer Research
Eli Lilly and Co. December 1992 SCA proteins Undetermined Research
Bristol-Myers Squibb, Inc. September 1993/ SCA proteins All TherapeuticsResearch
July 1994
</TABLE>
SANOFI AGREEMENT
In June 1989, Enzon granted to Sanofi (the "Sanofi Agreement") the
exclusive worldwide marketing rights, foreign regulatory approval
responsibility and foreign manufacturing rights for PEG-SOD, which is the
enzyme SOD modified by the PEG Process. SOD destroys oxygen free radicals that
may damage tissue during reperfusion associated with myocardial infarction,
organ transplant and trauma. Generally, Enzon will be entitled to 40% of the
net profits from sales of PEG-SOD in the United States during the life of the
basic U.S. PEG patent covering the product, with agreed-upon limits on the
amount of expenses that can be deducted by Sanofi from revenues before
calculating the profit split. Sanofi is presently developing PEG-SOD, which it
has trademarked as DISMUTEC, for closed head trauma. Sanofi has advised the
Company that it is currently conducting an expanded Phase III clinical trial on
PEG-SOD, which is expected to be completed during the fourth quarter of 1995.
A smaller, double blind, Phase III study with approximately 460 patients has
been completed. This study showed that patients receiving DISMUTEC showed 18%
and 16% relative improvement in favorable neurological outcomes compared to
patients receiving a placebo three and six months after injury, respectively.
Published sources indicate that the FDA has granted PEG-SOD "fast track" status
in the FDA's new drug approval process.
Under the Sanofi Agreement, Enzon is entitled to manufacture PEG-SOD for
United States sales by Sanofi; however, Sanofi has the right to take over such
manufacturing or have such manufacturing performed on its behalf in
consideration for the payment, under certain circumstances, of an additional
royalty. Sanofi is manufacturing the PEG-SOD utilized in its clinical trials
and the Company expects that Sanofi will manufacture the product for U.S. sales
if it is approved by the FDA. All development and regulatory approval costs
for PEG-SOD, including the cost of unmodified enzymes for the product used in
pre-approval testing are to be borne by Sanofi.
The Sanofi Agreement terminates on a country by country basis upon the
expiration of the last to expire of the patents licensed to the Company under
its license agreement with RCT. The United States patent licensed to Enzon
under its agreement with RCT expires in December 1996. The Company has entered
into an agreement with RCT to seek an extension of this patent for up to five
years. The foreign patents covered by this license expired in earlier years,
see "Patents". Upon such patent expiration or termination of the Sanofi
Agreement due to the Company's breach of the agreement or bankruptcy, the
license granted to Sanofi automatically converts to a non-exclusive, royalty-
free, paid-up license, except that Sanofi may maintain an exclusive license
with respect to PEG-SOD by paying the Company a reduced royalty on Sanofi's
sales of PEG-SOD. Sanofi has the right to terminate the Sanofi Agreement at
any time with respect to any or all of the countries which are covered by the
agreement with no further obligation to the Company, in which case all rights
terminated by Sanofi in this manner shall revert to the Company.
For information regarding certain agreements between Enzon and RCT with
respect to the extension of the patent which is the subject of Enzon's license
agreement with Sanofi, see "Patents".
SCHERING AGREEMENT
In November 1990, Enzon and Schering Corporation ("Schering"), a
subsidiary of Schering-Plough Corporation, signed an agreement (the "Schering
Agreement") to apply the PEG Process to Schering's INTRON A (interferon alfa
2b), a genetically-engineered anticancer and antiviral drug. According to
published sources, INTRON A, as it is currently formulated, must be
administered at least three times a week by injection and can produce side
effects such as fever and occasionally depressed blood count. A PEG form of
INTRON A would be designed to improve the administration regimen by increasing
the product's blood circulating life.
INTRON A is currently approved in the United States for use in chronic
hepatitis B, chronic hepatitis C, AIDS-related Kaposi's sarcoma, venereal warts
and hairy cell leukemia. It is approved for use in 65 countries for a total of
16 disease indications. Schering-Plough Corporation reported 1994 INTRON A
sales of $426,000,000 worldwide. In August 1992, a Phase I human clinical
trial began using PEG-INTRON A for the indication of hepatitis. The protocol
for that trial was completed. Schering and Enzon amended the Schering
Agreement to develop a PEG-INTRON A formulation having improved performance
characteristics. Pursuant to the amended agreement, the Company has prepared
and delivered several PEG-INTRON A formulations for Schering's evaluation for
additional clinical trials.
On June 30, 1995, the Company and Schering further amended the Schering
Agreement pursuant to which Enzon agreed to transfer proprietary know-how and
manufacturing rights for PEG-INTRON A to Schering for $3,000,000, of which
$2,000,000 was paid on June 30, 1995 and $1,000,000 will be paid upon
completion of the know-how transfer, as defined in such amended agreements. In
connection with the amendment, the Company also sold to Schering approximately
847,000 shares of unregistered, newly issued Common Stock for $2,000,000 in
gross proceeds. Under the current Schering Agreement, Enzon retained an option
to become Schering's exclusive manufacturer of PEG-INTRON A for the United
States market upon FDA approval of such product.
Under the Schering Agreement, Enzon is entitled to receive sequential
payments, totalling approximately $6,000,000, subject to the achievement of
certain milestones in the product's development program, as well as payments
for the clinical material it produces. During the year ended June 30, 1992,
the Company received the first milestone payment of $450,000 related to the
filing of an Investigational New Drug Application. The Company will also
receive royalties on worldwide sales of PEG-INTRON A, if any. Schering will be
responsible for conducting and funding the clinical studies, obtaining
regulatory approval and marketing the product worldwide on an exclusive basis.
The Schering Agreement terminates, on a country-by-country basis, upon
the expiration of the last to expire of any future patents covering the product
which may be issued to Enzon, or 15 years after the product is approved for
commercial sale, whichever shall be the later to occur. This agreement is
subject to Schering's right of early termination if the product does not meet
specifications, or if Enzon fails to obtain or maintain the requisite product
liability insurance, or if Schering makes certain payments to Enzon. If
Schering terminates the agreement because the product does not meet
specifications, Enzon may be required to refund certain of the milestone
payments.
BRISTOL-MYERS AGREEMENT
In September 1993, the Company and Bristol-Myers signed a license
agreement for Enzon's SCA protein technology granting Bristol-Myers a world-
wide, semi-exclusive license for a particular antigen. Bristol-Myers will
apply the technology to develop cancer therapies based on antibodies targeting
certain cancer cells. Under the agreement, Enzon is entitled to receive
certain upfront payments and sequential payments, subject to the achievement of
certain milestones in the development program. Bristol-Myers will have the
right to manufacture and market products which it develops and Enzon will
receive certain royalties on Bristol-Myers sales, if any. In July 1994,
Bristol-Myers paid $1,800,000 to Enzon and exercised an option under the
contract to acquire a world-wide non-exclusive license for SCA protein
technology. The non-exclusive license is for all therapeutic fields.
BAXTER AGREEMENT
In November 1992, Enzon and Baxter signed an agreement granting Baxter a
non-exclusive worldwide license to Enzon's SCA protein technology. It is
anticipated that Baxter will use the SCA proteins in its cancer research
programs focusing on human stem cell isolation and gene therapy.
Under the agreement, Enzon is entitled to receive certain upfront
payments and sequential payments, subject to the achievement of certain
milestones in the development programs. Baxter will have the exclusive
worldwide right to manufacture and market any products which it develops and
Enzon will receive certain royalties on Baxter's sales, if any.
ELI LILLY (HYBRITECH) AGREEMENT
In December 1992, Enzon and Hybritech Incorporated ("Hybritech"), a
subsidiary of Eli Lilly, signed an agreement granting Hybritech a non-exclusive
worldwide license to Enzon's SCA protein technology. Hybritech subsequently
assigned this agreement to Eli Lilly. Under the agreement, Enzon is entitled
to certain upfront payments totaling $1,200,000, of which $700,000 and $500,000
were received during the fiscal years ended June 30, 1994 and 1993,
respectively, and is entitled to receive certain royalties on sales of products
that may be developed using Enzon's SCA protein technology.
MARKETING
Other than ADAGEN, which the Company markets on a worldwide basis to a
small patient population, the Company does not engage in the direct commercial
marketing of any of its products and therefore does not have an established
sales force. For certain of its products, the Company has provided exclusive
marketing rights to its corporate partners in return for royalties to be
received on sales. With respect to ONCASPAR, the Company has granted RPR
exclusive marketing rights in North America pursuant to the agreements
described in "Products on the Market - ONCASPAR".
The Company expects to retain marketing partners to market ONCASPAR in
other foreign markets and is currently pursuing arrangements in this regard.
There can be no assurance that the Company will conclude any such arrangements.
Regarding the marketing of certain of the Company's other future products, the
Company expects to evaluate whether to create a sales force to market certain
products in the United States or to continue to enter into license and
marketing agreements with others for United States and foreign markets. These
agreements generally provide that all or a significant portion of the marketing
of these products will be conducted by the Company's licensees or marketing
partners. In addition, under certain of these agreements, the Company's
licensee or marketing partner may have all or a significant portion of the
development and regulatory approval responsibilities.
RAW MATERIALS AND MANUFACTURING
In the manufacture of its products, the Company couples activated forms
of PEG to the unmodified proteins. In the case of PEG, the Company does not
have a long-term supply agreement, but maintains what it believes to be an
adequate inventory which should provide the Company sufficient time to find an
alternate supply of PEG, in the event it becomes necessary, without material
disruption of its business.
With respect to Enzon's manufacturing facilities, prior to the approval
of both ADAGEN and ONCASPAR, the Company's manufacturing facility was inspected
by the FDA for compliance with its guidelines for current good manufacturing
practices.
Although the Company is currently producing many of the unmodified
proteins utilized in products it has under development, including purified
bovine hemoglobin for use in its PEG-hemoglobin product, it may be required to
obtain supply contracts with outside suppliers for certain unmodified proteins.
The Company does not produce the unmodified adenosine deaminase used in the
manufacture of ADAGEN and the unmodified L-asparaginase used in the
manufacture of ONCASPAR and has a supply contract with an outside supplier for
each of these unmodified proteins. The supply contract for unmodified L-
asparaginase contains minimum purchase requirements. Under the Sanofi
Agreement, in the event Sanofi decides to have the Company manufacture PEG-SOD,
which the Company believes is unlikely, it will be the responsibility of Sanofi
to provide the Company with unmodified SOD as needed. Schering is required
under the Schering Agreement to provide the Company with unmodified INTRON A if
the Company exercises its option to manufacturer PEG-INTRON A for the United
States market.
The Company currently manufactures the unmodified protein used in PEG-
glucocerebrosidase, which is currently in clinical trials. There can be no
assurance that the unmodified protein used in the manufacture of PEG-
glucocerebrosidase can be produced in the amounts necessary to expand the
current clinical trials.
Delays in obtaining or an inability to obtain any unmodified protein
which the Company does not produce, including unmodified adenosine deaminase or
L-asparaginase, could have a material adverse effect on the Company. In the
event the Company is required to locate an alternate supplier for an unmodified
protein utilized in a product which is being sold commercially or which is in
clinical development, the Company will likely be required to do additional
testing, which could cause delay and additional expense, to demonstrate that
the alternate supplier's material is biologically and chemically equivalent to
the unmodified protein previously used. Such evaluations could include one or
all of the following: chemical, pre-clinical and clinical studies.
Requirements for such evaluations would be determined by the stage of the
product's development and the reviewing division of the FDA. If such alternate
material is not demonstrated to be chemically and biologically equivalent to
the previously used unmodified protein, the Company will likely be required to
repeat some or all of the pre-clinical and clinical trials with such protein.
The marketing of an FDA approved drug could be disrupted while such tests are
conducted. Even if the alternate material is shown to be chemically and
biologically equivalent to the previously used protein, the FDA may require the
Company to conduct additional clinical trials with such alternate material.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the United
States requires the approval of the FDA under the Federal Food, Drug and
Cosmetic Act. Similar approvals by comparable agencies are required in most
foreign countries. The FDA has established mandatory procedures and safety
standards which apply to the clinical testing, manufacture and marketing of
pharmaceutical products. Obtaining FDA approval for a new therapeutic may take
several years and involve substantial expenditures. Pharmaceutical
manufacturing facilities are also regulated by state, local and other
authorities.
As an initial step in the FDA regulatory approval process, pre-clinical
studies are conducted in animal models to assess the drug's efficacy and to
identify potential safety problems. The results of these studies are submitted
to the FDA as a part of the Investigational New Drug Application ("IND"), which
is filed to obtain approval to begin human clinical testing. The human
clinical testing program may involve up to three phases. Data from human
trials are submitted to the FDA in a New Drug Application ("NDA") or Product
License Application ("PLA"). Preparing an NDA or PLA involves considerable
data collection, verification and analysis.
ONCASPAR and ADAGEN received FDA marketing approval in February 1994 and
March 1990, respectively. None of the Company's other products has received
FDA marketing approval. Difficulties or unanticipated costs may be encountered
by the Company or its licensees or marketing partners in their respective
efforts to secure necessary governmental approvals, which could delay or
preclude the Company or its licensees or marketing partners from marketing
their products.
With respect to patented products, delays imposed by the government
approval process may materially reduce the period during which the Company will
have the exclusive right to exploit them. See "Patents".
COMPETITION
Many established biotechnology and pharmaceutical companies with greater
resources than the Company are engaged in activities that are competitive with
those of Enzon and may develop products or technologies which compete with
those of the Company. Although Enzon believes that the experience of its
personnel in biotechnology, the patent under which the Company has a license
from Research Corporation, other patents which have been licensed by or issued
to the Company and the proprietary know-how developed by the Company provide it
with a competitive advantage in its field, there can be no assurance that the
Company will be able to maintain any competitive advantage, should it exist, in
view of the greater size and resources of many of the Company's competitors.
Research Corporation has in the past, and may in the future, license to other
parties products under the original patent which are not already licensed or
reserved for license to the Company.
Enzon is aware that other companies are conducting research on chemically
modified therapeutic proteins and that certain companies are modifying
pharmaceutical products, including proteins, by attaching PEG. While the
Company believes that products modified with its PEG Process are superior to
these other products, there is no assurance that this will prove to be the
case. Other than the Company's products ONCASPAR and ADAGEN, the Company is
unaware of any PEG-modified therapeutic proteins which are currently available
commercially for therapeutic use. Nevertheless, other drugs or treatment
modalities which are currently available or that may be developed in the
future, and which treat the same diseases as those which the Company's products
are designed to treat, may be competitive with the Company's products.
Prior to the development of ADAGEN, the Company's first FDA approved
product, the only treatment available to patients afflicted with SCID was bone
marrow transplants. Completing a successful transplant depends upon finding a
matched donor, the probability of which is low. More recently, researchers at
the NIH have been attempting to treat SCID patients with gene therapy, which if
successfully developed, would compete with, and could eventually replace ADAGEN
as a treatment. The theory behind gene therapy is that cultured T-lymphocytes
injected back into the patient will express permanently and at normal levels,
adenosine deaminase, the deficient enzyme in people afflicted with SCID. To
date, gene therapy clinical trials have not been conclusive. Those patients
currently being treated with gene therapy have continued to be treated with
ADAGEN.
Current standard treatment of patients with ALL includes administering
unmodified L-asparaginase along with the drugs vincristine, prednisone and
daunomycin. Recent studies have shown that long-term treatment with
L-asparaginase increases the disease free survival in high risk patients.
ONCASPAR, the Company's PEG-modified L-asparaginase product, is used to treat
patients with ALL who are hypersensitive (allergic) to unmodified forms of
L-asparaginase. The long-term survival and cure of ALL patients depends upon
achieving a sustainable first remission. Currently, there are two unmodified
forms of L-asparaginase available in the United States -- Elspar and Erwinase.
The Company believes that ONCASPAR has the following two advantages over these
unmodified forms of L-asparaginase: increased circulating blood life and
generally reduced immunogenicity.
Several companies are actively pursuing the development of a blood
substitute and certain of these products are currently also being tested in
clinical trials. Companies developing a hemoglobin-based product have
researched the use of human, bovine, genetically engineered and transgenic
hemoglobin. Each source of hemoglobin has various problems associated with it.
The use of outdated human donor blood relies on a hemoglobin source which is at
risk, both in terms of safety and supply availability. In the case of
non-human or mutant (genetically engineered) hemoglobin, there is a risk of
eliciting an immunogenic or allergic response to what the body considers to be
a foreign protein. The Company believes that the use of genetic engineering
techniques to produce a safe hemoglobin in commercial quantities will require
the development of manufacturing capabilities which to date have generally not
been demonstrated. Enzon believes its PEG-hemoglobin product will address the
problems of immunogenicity and transfer of human disease, and further enable
the Company to manufacture large quantities of the product. The Company is
also aware of competitors who have conducted clinical trials on bovine-based
hemoglobin-based oxygen carriers. There can be no assurance that such
competing products will not be approved for sale by the FDA before the
Company's product.
Certain of the Company's competitors are attempting to develop oxygen
carriers using perfluorocarbons ("PFC"). The FDA has allowed PFC trials only
for very limited applications where benefits may be realized from localized,
short-term use of very small amounts of the substance. PFCs are currently
approved by the FDA for limited use in angioplasty patients. Clinical trials
of PFC-based oxygen carriers for treatment of anemia were halted prior to
completion.
PEG-glucocerebrosidase is being developed by the Company and is intended
to treat Gaucher disease. The FDA has granted Orphan Drug designation for the
Company's PEG-glucocerebrosidase. In the event PEG-glucocerebrosidase is
developed successfully, it would compete with CEREDASE, an FDA approved
product, which is derived from human placental tissue, marketed by Genzyme
Corporation ("Genzyme"), for the treatment of Gaucher disease. Genzyme
received FDA approval for CEREDASE in April 1991. Genzyme also has received
FDA marketing approval for a recombinant glucocerebrosidase.
PEG-glucocerebrosidase would be designed to reduce the frequency of dosage and
improve the method of administration by increasing the product's blood
circulating life.
There are several technologies which compete with the Company's SCA
technology, including chimeric antibodies, humanized antibodies, human
monoclonal antibodies, recombinant antibody FAB fragments, low molecular weight
peptides and mimetics. These competing technologies can be categorized into
two areas: (i) those modifying the monoclonal to minimize immunological
reaction to a foreign protein, which is the strategy employed with chimerics,
humanized antibodies and human monoclonal antibodies, and (ii) those creating
smaller portions of the monoclonal which are more specific to the target and
have fewer side effects, as is the case with FAB fragments and low molecular
weight peptides. Enzon believes that the smaller size of its SCA proteins
should permit better penetration into the tumor, result in rapid clearance from
the blood and cause a significant decrease in the immunogenic problems
associated with conventional monoclonal antibodies. A number of companies have
active programs in SCA proteins. The Company believes that its patent position
on SCA proteins will require these other companies to obtain licenses from
Enzon, in order to commercialize their products, but there can be no assurance
that this will prove to be the case.
RESEARCH CORPORATION LICENSE AGREEMENTS
On December 18, 1979, the United States Patent and Trademark Office
issued a patent encompassing the PEG Process (Non-Immunogenic Polypeptides,
Patent No. 4,179,337) to one of the Company's co-founders, Frank F. Davis,
Ph.D., and two other inventors who are unaffiliated with the Company. Dr.
Davis and his co-inventors were all professors at Rutgers University in New
Brunswick, New Jersey at the time the patent was issued. The patent was
transferred from Rutgers University to RCT, a not-for-profit corporation,
pursuant to an agreement between Rutgers University and RCT requiring such
transfer in return for RCT's paying the costs associated with obtaining the
patent and making certain royalty payments to the inventors. RCT then granted
certain licenses under the patent to Enzon, which was formed by Dr. Abraham
Abuchowski and Dr. Davis to commercialize the PEG Process.
Under the license agreement between the Company and RCT, dated August 25,
1985, and as amended on May 3, 1989, RCT granted the Company an exclusive
license, with the right to sublicense, to make, use and sell certain products
utilizing the PEG Process as set forth in the original patent held by RCT in
countries in which a patent exists or a patent application has been filed by
RCT. Under this license agreement, the Company has obtained such a license for
seven specific products, has the right to use limited research quantities of
non-licensed enzymes, and has the option to include all other enzymes, except
allergens and lymphokines, under this license by paying RCT an option fee. The
Company has certain diligence obligations to obtain regulatory approval of the
licensed products in those countries in which patents covering the PEG Process
have been issued, including obtaining FDA approval in the United States, and to
sell the licensed products once such approvals are obtained.
Enzon entered into another license agreement with RCT in September 1989,
under which Enzon was granted an exclusive license under the patent covered by
the License Agreement, with the right to sublicense, to make, use, and sell
products in eight additional fields. The Company also has the option to
license several other products. The Company has exercised this option for PEG-
glucocerebrosidase and PEG-alpha-galactosidase. The terms of this license
agreement are similar to the terms of the original license agreement, except
that the Company has expanded rights to enforce the licensed patents for these
products. See "Patents".
The Company and RCT have signed agreements seeking to extend the PEG
patent for PEG-SOD. Under United States patent laws, interim patent extension
is available for PEG-SOD, provided a NDA is filed before scheduled expiration
of the patent at the end of 1996, and other requirements of the law are met. A
final extension is available upon FDA approval of the product. Under the
agreements with RCT, Enzon will also pay RCT a royalty on sales of ONCASPAR
until 1999.
RCT has in the past, and may in the future, license products to other
parties under the original patent covered by its license agreement with the
Company which are not already licensed or reserved to the Company.
PATENTS
The Company has licensed, and been issued, a number of patents in the
United States and other countries and has other patent applications pending to
protect its proprietary technology. Although the Company believes that its
patents provide adequate protection for the conduct of its business there can
be no assurance that such patents will be of substantial protection or
commercial benefit to the Company, will afford the Company adequate protection
from competing products, will not be challenged or declared invalid, or that
additional United States patents or foreign patent equivalents will be issued
to the Company. The degree of patent protection to be afforded to
biotechnological inventions is uncertain and the Company's products are subject
to this uncertainty. The Company is aware of certain issued patents and patent
applications, and there may be other patents and applications, containing
subject matter which the Company or its licensees or collaborators may require
in order to research, develop or commercialize at least some of the Company's
products. There can be no assurance that licenses under such subject matter
will be available on acceptable terms. One such patent is U.S. Patent No.
5,084,558, which issued on January 28, 1992, and is entitled "Extra Pure
Semi-Synthetic Blood Substitute". It could be asserted that this patent
includes claims which would cover the Company's PEG-hemoglobin product. In the
opinion of the Company and the Company's outside patent counsel, Lerner, David,
Littenberg, Krumholz and Mentlik, the Company's PEG-hemoglobin product does not
infringe any claim of such patent which would be held valid if litigated.
However, there can be no assurance that a court would find any of the claims of
such patent to be invalid, that a court would not hold that the Company's
PEG-hemoglobin product does infringe one or more valid claims of such patent,
or that a license could be obtained under such patent on acceptable terms. The
Company expects that there may be significant litigation in the industry
regarding patents and other proprietary rights and, if Enzon were to become
involved in such litigation, it could consume a substantial amount of the
Company's resources. In addition, the Company relies heavily on its
proprietary technologies for which pending patent applications have been filed
and on unpatented know-how developed by the Company. Insofar as the Company
relies on trade secrets and unpatented know-how to maintain its competitive
technological position, there can be no assurance that others may not
independently develop the same or similar technologies. Although the Company
has taken steps to protect its trade secrets and unpatented know-how,
third-parties nonetheless may gain access to such information.
RCT holds the original patents upon which the PEG Process is based. The
Company's ability to market certain of its PEG products is dependent upon its
license agreements with RCT under these patents. Although the Company has
licensed certain products covered by the patents held by RCT, there can be no
assurance that these patents will enable the Company or RCT to prevent
infringement or that competitors will not develop competitive products outside
the protection that may be afforded by these patents. RCT's patent in the
United States expires in December 1996 and its patents in certain foreign
countries have expired or will expire in the remainder of 1995. The Company is
aware that others have also filed patent applications and have been granted
patents in the United States and other countries with respect to the
application of PEG to proteins. The Company is permitted, under certain
circumstances, to enforce the patents for certain of the products covered by
the license agreements with RCT. Generally, however, under the terms of its
license agreements with RCT, the Company cannot commence any action to
prosecute any infringement of the patents and must rely upon RCT to do so. If
RCT is unwilling or unable to bring such a suit, the Company may be precluded
from doing so and its business may be materially adversely affected. Even if
the Company were permitted under its agreements with RCT to prosecute a patent
infringement action, it may not have the resources to do so.
In the field of SCA proteins, the Company has several United States and
foreign patents and patent applications, including a patent granted in August
1990 covering the genes needed to encode SCA proteins. Creative BioMolecules,
Inc. ("Creative") provoked an interference with the patent and on June 28,
1991, the United States Patent and Trademark Office entered summary judgment
terminating the interference proceeding and upholding the Company's patent.
Creative subsequently lost its appeal of this decision in the United States
Court of Appeals. Creative did not file a petition for review of this decision
by the United States Supreme Court within the required time period.
In November 1993, Enzon and Creative signed collaborative agreements in
the field of Enzon's SCA protein technology and Creative's Biosynthetic
Antibody Binding Site (BABS) protein technology. Under the agreements, each
company is free, under a non-exclusive, worldwide license, to develop and sell
products utilizing the technology claimed by both companies' antigen binding
engineering patents, without paying royalties to the other. Each is also free
to market products in collaboration with third parties, but the third parties
will be required to pay royalties on products covered by the patents which will
be shared by the companies, except in certain instances. Enzon has the
exclusive right to market licenses under both companies' patents other than to
Creative's collaborators. In addition, the agreements provide for the release
and discharge by each company of the other, from any and all claims based on
past infringement of the technology which is the subject of the agreements.
The agreement also provides for any future disputes between the companies,
regarding new patents in the area of engineered monoclonal antibodies, to be
resolved pursuant to agreed upon procedures.
Although the Company believes that its patents provide adequate
protection for the conduct of its business as described herein, there can be no
assurance that such patents will be of substantial protection from competing
products, will not be challenged or declared invalid, or that additional United
States patents or foreign patent equivalents will be issued to the Company.
EMPLOYEES
As of June 30, 1995, Enzon employed 123 persons, of whom 61 were engaged
in research and development activities, 36 were engaged in manufacturing, and
26 were engaged in administration and management. As of June 30, 1995, the
Company had 25 employees who hold Ph.D. degrees. The Company believes that it
has been highly successful in attracting skilled and experienced scientific
personnel; however, competition for such personnel is intensifying. None of
the Company's employees are covered by a collective bargaining agreement. All
of the Company's employees are covered by confidentiality agreements. Enzon
considers relations with its employees to be good.
ITEM 2. PROPERTIES
The Company owns no real property. The following are all of the
facilities that Enzon currently leases:
APPROX. APPROX.
PRINCIPAL SQUARE ANNUAL LEASE
LOCATION OPERATIONS FOOTAGE RENT EXPIRATION
20 Kingsbridge RoadResearch & Development56,000$440,000(1) June 16, 2007
Piscataway, NJ and Administrative
<TABLE>
<CAPTION> <C> <C> <C>
40 Cragwood Road Research & 88,000 792,000(2) December 31, 1998
</TABLE>
S. Plainfield, NJDevelopment, Pilot
Scale Manufacturing
<TABLE>
<CAPTION>
<C> <C> <C>
300 Corporate Ct.Manufacturing 24,000 135,000(3) November 30, 1998
</TABLE>
S. Plainfield, NJ
(1) Under the terms of the lease, annual rent increases over the term of the
lease from $440,000 to $581,000.
(2) Net of subrental income of $242,000; the sublease is for approximately
24,312 square feet.
(3) Net of subrental income of $48,000; the sublease is for approximately
6,000 square feet.
The Company believes that its facilities are well maintained and
generally adequate for its present and future anticipated needs.
During fiscal 1995, the Company terminated its lease for its 40
Kingsbridge Road facility which was scheduled to expire in 2007, in return for
the surrender of the $600,000 security deposit on the building.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending to which the Company is a party
or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the NASDAQ National Market System under the trading symbol "ENZN".
The following table sets forth the high and low sale prices for the
Common Stock for the years ended June 30, 1995 and 1994, as reported by the
NASDAQ National Market System. The quotations shown represent inter-dealer
prices without adjustment for retail mark-ups, mark downs or commissions, and
may not necessarily reflect actual transactions.
HIGH LOW
Year Ended June 30, 1995
First Quarter 3 1/4 2 1/8
Second Quarter 3 1/8 1 1/2
Third Quarter 2 1/2 1 11/16
Fourth Quarter 2 7/8 1 3/4
Year Ended June 30, 1994
First Quarter 6 3/8 4 1/8
Second Quarter 6 1/4 4 3/8
Third Quarter 5 5/8 4 1/8
Fourth Quarter 4 3/8 2
As of September 15, 1995 there were 3,235 holders of record of the Common
Stock.
The Company has paid no dividends on its Common Stock since its inception
and does not plan to pay dividends on its Common Stock in the foreseeable
future. Except as may be utilized to pay dividends payable on the Company's
outstanding Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Shares" or "Series A Preferred Stock"), any earnings which the
Company may realize will be retained to finance the growth of the Company. In
addition, no dividends may be paid or set apart for payment on the Common Stock
unless the Company shall have paid in full, or made appropriate provision for
the payment in full of, all dividends which have then accumulated on the Series
A Preferred Shares.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is the selected financial data for the Company for the
five fiscal years ended June 30, 1995.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Revenues $ 2,410,638$ 5,684,944$ 8,414,349 $ 14,797,499 $15,826,437
Net Loss $(11,960,760)$(28,182,829) $(24,601,310) $(16,495,226) $(6,291,491)
Net Loss per Share$ ( .90)$ (1.46)$ (1.15)$ (.71)$ (.26)
</TABLE>
Dividends on
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Stock None None None None None
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
JUNE 30,
<TABLE>
<CAPTION> <C> <C> <C> <C>
1991 1992 1993 1994 1995
Total Assets $ 54,205,130 $39,310,862 $33,920,859 $20,543,252 $19,184,042
</TABLE>
Long-Term
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Obligations None $ 232,958 $ 141,772 $ 115,733 $ 4,076
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
REVENUES. The components of revenues for the last three fiscal years
have principally been sales and contract revenues.
Revenues for the fiscal year ended June 30, 1995 increased by 7% to
$15,826,000 as compared to $14,797,000 for fiscal 1994. Sales increased by 35%
to $11,024,000 for the year ended June 30, 1995 as compared to $8,182,000 for
the prior year, due to the shipment of clinical material to Schering, an
increase in patients receiving ADAGEN and increased ONCASPAR revenues from RPR.
The Company has no firm orders for additional clinical supplies from Schering.
ADAGEN sales for the years ended June 30, 1995 and 1994 were $8,305,000 and
$7,601,000, respectively. Contract revenue for the year ended June 30, 1995
decreased by 27% to $4,802,000, as compared to $6,616,000 for fiscal 1994. The
decrease was principally due to a one time payment received during fiscal 1994
from RPR related to the FDA approval of ONCASPAR. The decrease was offset in
part by a payment of $1,800,000 recorded in fiscal 1995 from Bristol-Myers
Squibb related to the exercise of its option under an agreement dated September
1993, to acquire a worldwide non-exclusive license for all therapeutic
indications for the Company's SCA protein technology and $2,000,000 received
related to the amendment of the Company's agreement with Schering. During the
fiscal years ended June 30, 1995 and 1994, the Company had export sales of
$2,105,000 and $2,085,000, respectively. Sales in Europe were $1,841,000 and
$1,957,000 for the years ended June 30, 1995 and 1994, respectively.
Revenues for fiscal 1994 increased by 76% to $14,797,000 as compared to
$8,414,000 for fiscal 1993. Sales increased by 15% to $8,182,000 for fiscal
1994 as compared to $7,113,000 for the prior year, due primarily to an increase
in patients receiving ADAGEN. The increase in sales of ADAGEN was offset in
part by a reduction in shipments of clinical supplies to a collaborative
partner, and a decrease in sales of the Company's software subsidiary, Symvex
Inc., which was shut down during the year. ADAGEN sales for the fiscal years
ended June 30, 1994 and 1993 were $7,601,000 and $5,788,000, respectively.
During the fiscal years ended June 30, 1994 and 1993, the Company had export
sales of $2,085,000 and $1,631,000, respectively. Sales in Europe were
$1,957,000 and $1,346,000 for the fiscal years ended June 30, 1994 and 1993,
respectively. Contract revenue for fiscal year 1994 increased by $5,405,000 to
$6,616,000, primarily due to $5,500,000 in one time licensing fees received
related to the FDA's approval of ONCASPAR under the Company's exclusive U.S.
marketing rights license with RPR.
COST OF SALES. Cost of sales, as a percentage of sales, for fiscal 1995
was 26% as compared to 27% in fiscal 1994. An increase in the charge to cost
of goods sold related to idle capacity at the Company's manufacturing facility
was offset by a decrease in the write-off of excess raw material (PEG). Prior
to the approval of ONCASPAR, the Company's first FDA approved drug for a
potentially large patient population, idle capacity was charged to research and
development expense. During the fiscal year ended June 30, 1995, the Company
utilized approximately 36% of its manufacturing capacity for its approved
products, ADAGEN and ONCASPAR, as well as clinical material for its
collaborative partner, Schering Corporation.
Cost of sales, as a percentage of sales, increased to 27% in fiscal 1994
as compared to 15% in fiscal 1993. The increase was due to (i) the write-off
of excess raw material (PEG), which would expire in the next year, and (ii) a
charge in the fourth quarter for idle capacity at the Company's manufacturing
facility. In the fourth quarter of fiscal 1994, the Company began classifying
idle capacity as cost of sales. Prior to the fourth quarter of 1994, idle
capacity was charged to research and development expense.
RESEARCH AND DEVELOPMENT. Research and development expenses in fiscal
1995 decreased by 32% to $12,084,000 as compared to $17,665,000 in fiscal 1994.
The majority of the Company's research and development expenditures related to
the continued development and clinical trials for PEG-hemoglobin and PEG-
glucocerebrosidase. The decrease was principally 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
facility and occupancy costs, (iii) the charging of idle capacity to cost of
sales, rather than research and development, as was the case in the first nine
months of fiscal 1994, and (iv) other cost containment measures implemented by
the Company. The decreases in research facility and occupancy costs related to
a one time credit received from one of the Company's landlords, the sublease of
certain facilities and the termination of one of the Company's long-term
facility leases and the resulting consolidation of its operations.
Research and development expenses in fiscal 1994 remained relatively
constant at $17,665,000 compared to $17,710,000 in fiscal 1993. Increased
costs in the areas of (i) contracted services related to toxicology studies,
(ii) wages and related benefits, and (iii) research facility and occupancy
costs were offset by a reduction in the amount of idle manufacturing capacity
during the first nine months of fiscal 1994 and other cost containment measures
taken by the Company. Idle capacity was charged to research and development
prior to the launch of ONCASPAR.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1995 decreased by 41% to $6,916,000 from
$11,710,000 for fiscal 1994. The decrease was due to (i) reductions in
personnel and related costs, such as payroll taxes and benefits, (ii) decreased
marketing and advertising costs for ONCASPAR as a result of the Company's
license agreement with RPR, and (iii) other cost containment measures taken by
the Company. Under the Company's exclusive U.S. marketing rights license, RPR
is responsible for all marketing and advertising costs related to ONCASPAR.
Selling, general and administrative expenses for fiscal 1994 decreased by
22% to $11,710,000 from $14,933,000 in fiscal 1993. The decrease was due to
(i) reductions in personnel and related costs, such as payroll taxes and
benefits, due to staff reductions, (ii) decreased marketing and advertising
costs for ONCASPAR as a result of the RPR license agreement, (iii) a reduction
in facility costs due to the closing of the Company's Gaithersburg, Maryland
facility, and (iv) other cost containment measures taken by the Company.
RESTRUCTURING EXPENSE. During the quarter ended March 31, 1995, the
Company reduced its workforce by 22 employees. As a result of these
reductions, the Company was able to terminate its lease for its administrative
headquarters at 40 Kingsbridge Road, Piscataway, New Jersey. These operations
were consolidated into the Company's research and development facility. As
part of the termination agreement, the landlord was able to draw down on a
$600,000 letter of credit that served as a security deposit on both of the
buildings the Company occupied on Kingsbridge Road in Piscataway. This
termination payment and severance related to the staff reduction as well as the
write-off of leasehold improvements, moving expenses and commissions due the
Company's real estate broker were recorded as restructuring expense during the
year ended June 30, 1995.
OTHER INCOME/EXPENSE. Other income/expense increased to $994,000 for
fiscal 1995 as compared to $250,000 for fiscal 1994. The increase was
principally due to an insurance settlement received during fiscal 1995 related
to ADAGEN that was destroyed in shipment.
Other income/expense decreased by 64% in fiscal 1994 as compared to the
previous year, primarily due to a reduction in interest-bearing investments as
well as a decrease in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Enzon had $8,103,000 in cash and cash equivalents as of June 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 June 30, 1995 increased by $2,372,000
from June 30, 1994. The increase in cash reserves was attributable to the
proceeds from the Company's public offering of its Common Stock, the
sale/leaseback of certain research and development equipment, the private sale
of Common Stock to Schering, and a royalty advance of $3,500,000 received
related to the renegotiation of the Company's exclusive U.S. marketing rights
license with RPR. These increases were offset in part by the funding of
operations for fiscal 1995.
During January 1995, the Company amended its exclusive U.S. marketing
rights license with RPR for ONCASPAR. Under the amended agreement, Enzon will
earn a royalty on net sales of ONCASPAR as opposed to 50% of net profits
provided for under the original agreement. The amended agreement provides for
a payment of $3,500,000 in advance royalties, which was received in January
1995. Royalties due under the amended agreement will be offset against a
credit of $5,970,000, which represents the royalty advance plus reimbursement
of certain amounts due RPR under the previous agreement and interest expense,
before cash payments will be made for base royalties, as defined 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
Balance Sheet as of June 30, 1995 and will be reduced as royalties are
recognized under the agreement.
The Company's agreement with Sanofi 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 Eastman Kodak Company ("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 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 June 30, 1995, 940,808 shares of 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
June 30, 1995, there were $1,149,000 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 and technology transfer and license fees. 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 anticipated cash
requirements through fiscal year end 1996.
Upon exhaustion of the Company's current cash reserves, the Company's
continued operations will depend on, among other things, 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.
In management's opinion, the effect of inflation on the Company's past
operations has not been significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report commencing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Item 10 - Directors and Executive Officers of
the Registrant; Item 11 - Executive Compensation; Item 12 - Security Ownership
of Certain Beneficial Owners and Management; and Item 13 - Certain
Relationships and Related Transactions is incorporated into Part III of this
Annual Report on Form 10-K by reference to the Company's Proxy Statement for
the Annual Meeting of Stockholders scheduled to be held on December 5, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) and (2). The response to this portion of Item 14 is submitted as
a separate section of this report commencing on page F-1.
(a)(3) and (c). Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
<TABLE>
<CAPTION>
Exhibit Page Number or
NUMBER DESCRIPTION Incorporation BY
REFERENCE
<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
24,
1994 ##(1.1)
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
Edward Ehrenberg ###(10.3)
10.2 Form of Change of Control Agreements dated as of January 20, 1995
entered ~(10.2)
into with the Company's Executive Officers
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 G. Tombros E1
21.0 Subsidiaries of Registrant E2
23.0 Consent of KPMG Peat Marwick LLP E3
23.1 Consent of Lerner, David, Littenberg, Krumholz & Mentlik E4
27.0 Financial Data Schedule E5
</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.
~ Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1995.
(b) Reports on Form 8-K
On July 20, 1995, the Company filed with the Commission a Current Report
on Form 8-K dated June 30, 1995, related to the Company and Schering executing
an amendment to the license and development agreement between the Company and
Schering, and the Company and Schering entering into a stock purchase agreement
pursuant to which Schering purchased shares of the Company's Common Stock
(Item 5).
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 25, 1995 /S/ PETER G. TOMBROS By: Peter G. Tombros
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
NAME TITLE DATE
/S/ PETER G. TOMBROS President, Chief September 25, 1995
Peter G. Tombros Executive Officer
and Director
(Principal Executive
Officer)
/S/ KENNETH J. ZUERBLIS Vice President, Finance September 25, 1995
Kenneth J. Zuerblis (Principal Financial and
Accounting Officer)
/S/ ABRAHAM ABUCHOWSKI Chairman of the Board September 25, 1995
Abraham Abuchowski
Director September 25, 1995
Rosina B. Dixon
/S/ ROBERT LEBUHN Director September 25, 1995
Robert LeBuhn
/S/ A.M. "DON" MACKINNON Director September 25, 1995
A.M. "Don" MacKinnon
/S/ RANDY H. THURMAN Director September 25, 1995
Randy H. Thurman
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Index
PAGE
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 1995 and 1994 F-3
Consolidated Statements of Operations - Years ended
June 30, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity -
Years ended June 30, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows - Years ended
June 30, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements - Years
ended June 30, 1995, 1994 and 1993 F-8
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Enzon, Inc:
We have audited the consolidated financial statements of Enzon, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enzon, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1995, in conformity with generally accepted accounting principles.
/S/KPMG PEAT
MARWICK LLP
KPMG Peat Marwick
LLP
New York, New York
September 21, 1995
F-2
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS'
EQUITY
<S> <C> <C> <C> <C> <C>
1995 1994 1995 1994
1994
Current assets: Current liabilities:
Cash and cash $8,102,989 $5,731,461 Accounts payable $1,561,968$2,419,571
equivalents 2,362,277 1,928,453 Accrued expenses 4,045,3024,238,274
Accounts receivable 792,453 939,823 Other accrued liabilities - due to Sanofi 1,312,829 1,312,829
Inventories 9,6745,185
Accrued interest 175,552 107,330 Total current liabilities 6,920,099 7,970,674
receivable
Prepaid expenses
Total current assets 11,442,945 8,712,252 Accrued rent 1,006,508 1,860,782
Royalty advance - RPR 2,955,841 -
Other liabilities 115,733
4,076
3,966,425 1,976,515
Property and equipment 15,758,058 17,606,217 Commitments and contingencies
Less accumulated
depreciation 9,968,024 8,386,254 Stockholders' equity:
and amortization
5,790,034 9,219,963 Preferred stock-$.01 par value, authorized
3,000,000 shares;
Other assets: issued and outstanding 109,000 shares in
Investments 78,616 80,756 1995 and 1994 1,0901,090
Cash surrender value of (liquidation preference $25 per share
life - 373,186 aggregating $2,725,000
insurance 46,627 170,935 in 1995 and 1994) 263,289244,273
Deposits and deferred 1,825,820 Common stock-$.01 par value, authorized 111,494,180107,520,250
charges 1,951,063 1,986,160 40,000,000 shares; (103,461,041) (97,169,550)
Patents, net 2,611,037 issued and outstanding 26,328,874 shares
in 1995 and
24,427,258 shares in 1994
Additional paid-in capital
Accumulated deficit
Total stockholders' equity 8,297,518 10,596,063
Total assets $19,184,042 $20,543,252 Total liabilities and stockholders' equity $19,184,042 $20,543,252
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1995, 1994 and 1993
YEARS
ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994 1993
Revenues
Sales $11,024,432 $8,181,999 $7,112,702
Grants - - 90,647
Contract revenue 4,802,005 6,615,500 1,211,000
Total revenues 15,826,437 14,797,499 8,414,349
<S> <C> <C> <C>
Costs and expenses
Cost of sales 2,918,737 2,168,3981,073,911
Research and development expenses 12,083,960 17,665,01417,709,805
Selling, general and administrative expenses 6,916,393 11,709,73514,932,960
Restructuring expense 1,192,971 - -
Total costs and expenses 23,112,061 31,543,147 33,716,676
Operating loss (7,285,624) (16,745,648) (25,302,327)
Other income (expense)
Interest and dividend income 236,848 306,381749,340
Interest expense (3,988) (19,068) (48,323)
Other 761,273 (36,891) -
994,133 250,422 701,017
Net loss ($6,291,491) ($16,495,226) ($24,601,310)
Net loss per common share ($0.26) ($0.71) ($1.15)
Weighted average number of common
shares outstanding during the period 25,184,718 23,646,061 21,694,579
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Years ended June 30, 1995, 1994 and
1993
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
Additional
Amount Number of Par Amount Number of Par paid-in
Accumulated
PER SHARE SHARES VALUE PER SHARE SHARES VALUE
CAPITAL DEFICIT TOTAL
Balance, July 1, 1992 Proceeds carried 131,000 109,000 $1,310 $1,090
Common stock issued for exercise from forward
of public - - - $4.50
incentive stock options offering
Common stock issued for exercise on - - - 4.12
of April
non-qualified stock options 22, 1994 25.00 (14,000) (140) 8.27
Common stock issued on conversion Compensation - - - 8.27
of expense
preferred stock related to - - - 6.05
Dividends issued on preferred vesting
stock of stock - - - 8.88
Proceeds from public offering on options
January 22, 1993 Common - - - 2.02
Common stock issued for stock - - - -
acquisition issued for 117,0001,170
of Enzon Labs Inc. acquisition
Issuance of common stock warrants of Enzon - - - 4.12
for Labs Inc.
Enzon Labs Inc. Issuance 25.00 (8,000) (80) 9.10
Net loss of common - - - 9.10
Balance, June 30, 1993 stock
Common stock issued for exercise warrants - - - 2.55
of for
non-qualified stock options Enzon - - --
Common stock issued on conversion Labs Inc.
of Net loss - - - 8.88
preferred stock Balance,
Dividends issued on preferred June 30, - - - 2.02
stock 1994 - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20,214,935 - $202,150 - $86,406,898 - ($55,925,014)($97,169,550)$30,685,344
3,00024,427,258 30 $244,273 13,470$107,520,250 - 13,500
25,300 253 104,072 - 104,325
42,320 423 (297) - (14)
10,157 101 83,896 (84,000) (3)
3,175,000 31,750 18,452,000 - 18,483,750
825 8 7,314 - 7,322
- - 1,390 - 1,390
- - - (24,601,310) (24,601,310)
23,471,537 234,715 105,068,743 (80,610,324) 24,694,304
140,850 1,409 578,942 - 580,351
21,978 220 (140) - -
7,032 70 63,921 (64,000) (9)
785,358 7,854 1,624,025 - 1,631,879
- - 179,465 - 179,465
503 5 4,459 - 4,464
- - 835 - 835
(16,495,226) (16,495,226)
$10,596,063
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(continued) F-5
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Years ended June 30, 1995, 1994 and
1993
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
Additional
Amount Number of Par Amount Number of Par paid-in
Accumulated
PER SHARE SHARES VALUE PER SHARE SHARES VALUE
CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 brought 109,000 $1,090 24,427,258 $244,273 $107,520,250($97,169,550)$10,596,063
forward
Compensation expense related - - - - - - 31,535 -31,535
to vesting - - - 2.06 954,000 9,540 1,742,524 -1,752,064
of stock options
Proceeds from public shelf - - - 2.25 100,000 1,000 224,000 -225,000
offering
Common stock issued for - - - 2.36 847,489 8,475 1,974,575 -1,983,050
building
purchase option - - - 8.88 127 1 1,126 -1,127
Common stock issued to
Schering - - - 2.02 - - 170 -170
Corporation - -
Common stock issued for - - - - - (6,291,491)(6,291,491)
acquisition of 109,000 $263,289
Enzon Labs Inc. $1,090 26,328,874 $111,494,180($103,461,041)$8,297,518
Issuance of common stock
warrants for
Enzon Labs Inc.
Net loss
Balance, June 30, 1995
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C> <C>
1995 1994 1993
Cash flows from operating activities:
Net loss ($6,291,491) ($16,495,226)($24,601,310)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 2,477,671 2,796,6542,557,250
Reserve for shutdown of Enzon Labs Inc. (71,743) (1,203,563)(24,694)
Loss on retirement of equipment 9,003 38,8684,391
Compensation expense for issuance of stock options 31,535 179,465-
Non-cash portion of restructuring expense 1,100,094 --
Changes in assets and liabilities:
Increase in accounts receivable (433,824) (313,141)(939,467)
Decrease in inventories 147,370 117,6149,515
(Increase) decrease in accrued interest receivable (4,489) 151,611294,045
(Increase) decrease in prepaid expenses (68,222) 222,179(14,790)
Decrease (increase) in cash surrender value of life 67,871 (66,148) 10,356
insurance 126,448 5,303(81,560)
Decrease (increase) in other assets (857,603) 407,433(362,170)
(Decrease) increase in accounts payable (349,431) 1,200,481(77,511)
(Decrease) increase in accrued expenses (854,274) 345,7551,156,598
(Decrease) increase in accrued rent 2,955,841 --
Increase in royalty advance - RPR (110,360) (1,340) (62,704)
Decrease in other liabilities (2,125,604) (12,614,055) (22,132,051)
Net cash used in operating activities
Cash flows from investing activities: (387,020) (828,711)(4,434,179)
Capital expenditures 861,521 41,600-
Proceeds from sale of equipment - -(4,947,393)
Increase in short-term investments - 4,947,39313,092,484
Proceeds from sale of short-term investments - -44,244
Decrease in long-term investments 305,315 - 673,600
Proceeds from cash surrender value of officer's life 779,816 4,160,282 4,428,756
insurance
Net cash provided by investing activities
3,735,114 2,212,22118,601,558
Cash flows from financing activities: (17,798) (22,833) (19,770)
Proceeds from issuance of common stock 3,717,316 2,189,388 18,581,788
Principal payments of obligations under capital leases
Net cash provided by financing activities 2,371,528 (6,264,385)878,493
Net increase (decrease) in cash and cash equivalents 5,731,461 11,995,846 11,117,353
Cash and cash equivalents at beginning of period $8,102,989 $5,731,461 $11,995,846
Cash and cash equivalents at end of period
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
ENZON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended June 30, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and
balances are eliminated in consolidation.
INVESTMENTS
Cash equivalents include investments which consist primarily of debt
securities and time deposits. The Company invests its excess cash in a
portfolio of marketable securities of institutions with strong credit
ratings and U.S. Government backed securities.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," (SFAS No. 115) on July 1, 1994. Under SFAS No. 115, the
Company classifies its investment securities as held-to-maturity. Held-
to-maturity securities are those securities which the Company has the
ability and intent to hold to maturity. Held-to-maturity securities are
recorded at cost which approximated the fair value of the investments at
June 30, 1995.
INVENTORY COSTING AND IDLE CAPACITY
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method and includes the cost of raw
materials, labor and overhead.
Costs associated with idle capacity at the Company's manufacturing
facility are charged to cost of sales as incurred. Prior to the fourth
quarter of the year ended June 30, 1994 and the approval of ONCASPAR, the
Company's first FDA approved drug for a potentially large patient
population, costs associated with idle capacity at the Company's
manufacturing facility were charged to research and development expenses.
PATENTS
Patents related to the acquisition of Enzon Labs Inc., formerly Genex
Corporation, were recorded at their fair value at the date of acquisition
and are being amortized over the estimated useful lives of the patents.
Accumulated amortization as of June 30, 1995 and 1994 was $588,000 and
$428,000, respectively.
Costs related to the filing of patent applications related to the
Company's products and technology are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in
operations for the period. The cost of repairs and maintenance is
charged to operations as incurred; significant renewals and betterments
are capitalized.
F-8
REVENUE RECOGNITION
Reimbursement from third party payors for ADAGEN is handled on an
individual basis due to the high cost of treatment and limited patient
population. Because of the uncertainty of reimbursement and the
Company's commitment of supply to the patient regardless of whether or
not the Company will be reimbursed, revenues for the sale of ADAGEN are
recognized when reimbursement from third party payors becomes likely.
Revenues from the sale of the Company's other products that are sold are
recognized at the time of shipment and provision is made for estimated
returns.
Revenues related to programming services are recorded as sales when
services are performed.
Contract revenues are recorded as the earnings process is completed.
Royalties under the Company's license agreement with Rhone-Poulenc Rorer
Pharmaceuticals, Inc. ("RPR") (see note 10), related to the sale of
ONCASPAR by RPR, are recognized when earned.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
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 $4,000 in 1995, $5,000 in
1994, and $7,000 in 1993. There were no income tax payments made for the
years ended June 30, 1995, 1994, and 1993.
During the year ended June 30, 1995, the Company issued 100,000 shares of
unregistered Common Stock in order to acquire an option to purchase the
facility it currently leases in Piscataway, New Jersey. During the years
ended June 30, 1994 and 1993, 8,000 and 14,000 shares of Series A
Cumulative Convertible Preferred Stock were converted to 22,000 and
42,000 shares of Common Stock, respectively. Accrued dividends of
$64,000 and $84,000 on the Series A Cumulative Convertible Preferred
Stock that was converted were settled by issuing 7,000 and 10,000 shares
of Common Stock and cash payments totalling $9 and $3 for fractional
shares for the years ended June 30, 1994 and 1993, respectively. There
was no conversion of the Series A Cumulative Convertible Preferred Stock
during the year ended June 30, 1995. These transactions are non-cash
financing activities.
Management believes that its sources of liquidity will be sufficient to
meet anticipated cash requirements through fiscal year end 1996. Upon
exhaustion of these sources of liquidity, the Company's continued
operations will depend on, among other things, its ability to realize
significant revenues from the commercial sale of 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 the Company will be able to obtain
additional funding when it is needed or that such funding, if available,
will be obtainable on terms favorable to the Company.
F-9
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
$218,000, $230,000 and $254,000 for the years ended June 30, 1995, 1994
and 1993, respectively, 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.
RECLASSIFICATIONS
Certain prior year balances were reclassified to conform to the 1995
presentation.
(2) RESTRUCTURING EXPENSE
During the quarter ended March 31, 1995, the Company reduced its
workforce by approximately 22 employees. As a result of these
reductions, the Company was able to move its general and administrative
operations into its existing research and development facility at 20
Kingsbridge Road in Piscataway, New Jersey.
On March 31, 1995, the Company terminated its lease for 83,000 square
feet at 40 Kingsbridge Road in Piscataway, New Jersey, its former general
and administrative facility. As part of the termination agreement, the
landlord was able to draw down on a $600,000 letter of credit that served
as the security deposit for both buildings that the Company occupied on
Kingsbridge Road in Piscataway. The termination payment, severance
related to staff reductions, write-off of leasehold improvements, moving
expenses and the commission due the Company's real estate broker related
to the termination of the 40 Kingsbridge lease were recorded as a
restructuring charge during the year ended June 30, 1995. Approximately
$227,000 of the restructuring expense represents severance related to the
staff reduction and the remaining $966,000 represents expenses incurred
in conjunction with the lease termination. As part of the commission due
the Company's real estate broker, 150,000 five-year warrants to purchase
the Company's Common Stock at $2.50 per share were issued in August 1995.
The termination of the Company's 40 Kingsbridge Road facility lease
reduces the Company's future minimum lease payments by $650,000, $729,000
and $729,000 for the fiscal years ending June 30, 1996, 1997 and 1998,
respectively, and an aggregate of $7,161,000 for the years thereafter.
As of June 30, 1995, approximately $758,000 of the restructuring charge
was unpaid and recorded in accrued expenses in the Consolidated Balance
Sheet. The Company anticipates that the unpaid restructuring charge will
be settled prior to December 31, 1995.
(3) RELATED PARTY TRANSACTIONS
The Company has license agreements with Research Corporation and its
successor, Research Corporation Technologies, Inc. ("RCT"), related to
the original PEG-Process patent. The PEG-Process was developed at
Rutgers University in New Brunswick, New Jersey by Dr. Frank Davis, one
of the Company's original founders, and two other inventors not
affiliated with the Company. These agreements granted the Company an
exclusive license to make, use and sell specific patented processes and
products in countries in which a patent has been granted, or in which an
application is pending, for the life of the patent. Under the terms of
the agreements, the Company has the obligation to diligently develop,
obtain regulatory approval for, and market these products.
F-10
The Company is obligated under its agreement with RCT to pay a license
maintenance fee of $75,000 each year during the term of this agreement,
which shall be creditable by the Company against earned royalties
payable, if any. As of June 30, 1995 and 1994, the Company had
approximately $286,000 and $270,000 related to such agreements recorded
as accrued expenses in the Consolidated Balance Sheets.
During August 1992, the Company entered into a license agreement with two
employees of the Company and an unrelated party to license a protein
related technology. The Company paid $20,000 to each of the parties upon
signing of the agreement and agreed to pay royalties of between 3% and 6%
of net sales. The agreement also provides for a yearly maintenance fee
of $15,000 commencing on January 30, 1993 and terminating on the first to
occur of January 30, 1998 or the January 30th immediately preceding the
date of the first sale of a licensed product. The agreement also
requires aggregate minimum royalties of $25,000 beginning at the earlier
of January 30, 1999 or the January 30th immediately following the date of
the first sale of a licensed product and between $35,000 and $50,000 for
subsequent years. The agreement terminates on the date on which the
licensed patent having the latest expiration date expires, after
accounting for extensions thereof. In both January 1995 and 1994, the
Company paid yearly maintenance fees of $15,000.
(4) COMMITMENTS AND CONTINGENCIES
The Company has a long-term supply agreement for unmodified L-
asparaginase, one of the raw materials used in ONCASPAR, under which the
Company is required to purchase minimum quantities of this raw material
on an annual basis. Under the agreement, which was amended during the
fiscal year ended June 30, 1995, the Company is currently required to
purchase $3,639,000 in raw material during the term of the contract,
which expires on December 31, 1997. During the year ended June 30, 1995,
the Company purchased approximately $186,000 related to this contract.
The Company is required to purchase an additional $1,514,000 prior to
December 31, 1995. The purchase requirements for the years ending
December 31, 1996 and 1997 are $850,000 and $1,275,000, respectively.
The Company has the option to satisfy $870,000 of the purchase
requirement for the year ending December 31, 1995, without taking
delivery of the product, by making a payment of $350,000.
The Company has agreements with certain members of its upper management
which provide for payments following a termination of employment
occurring after a change in control of the Company.
(5) INVENTORIES
Inventories consist of the following:
JUNE 30,
1995 1994
Raw materials $398,000 $407,000
Work in process 134,000 289,000
Finished goods 260,000 244,000
$792,000 $940,000
F-11
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, Estimated useful lives
<S> <C> <C> <C>
1995 1994 USEFUL LIVES
Equipment $9,284,000 $10,287,000 3-7 years
Furniture and fixture 1,598,000 $1,845,000 7 years
Vehicles 29,000 29,000 3 years
Leasehold improvements 4,847,000 5,445,000 3-15 years
$15,758,000 $17,606,000
</TABLE>
Depreciation and amortization charged to operations, relating to property
and equipment, were $2,317,000, $2,636,000 and $2,397,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
(7) STOCKHOLDERS' EQUITY
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Company's Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Shares") is convertible into Common Stock at an annually
increasing rate per share with a maximum conversion rate of $11 per
share. As of June 30, 1995 and 1994, the conversion rates were $11 and
$10 per share, respectively. The value of the Series A Preferred Shares
for conversion purposes is $25 per share. Holders of the Series A
Preferred Shares are entitled to an annual dividend of $2 per share,
payable semiannually, but only when and if declared by the Board of
Directors, out of funds legally available. Dividends on the Series A
Preferred Shares are cumulative and accrue and accumulate but will not be
paid, except in liquidation or upon conversion, until such time as the
Board of Directors deems it appropriate in light of the Company's then
current financial condition. No dividends are to be paid or set apart
for payment on the Company's Common Stock, nor are any shares of Common
Stock to be redeemed, retired or otherwise acquired for valuable
consideration unless the Company has paid in full or made appropriate
provision for the payment in full of all dividends which have then
accumulated on the Series A Preferred Shares. Holders of the Series A
Preferred Shares are entitled to one vote per share on matters to be
voted upon by the stockholders of the Company. As of June 30, 1995 and
1994 undeclared accrued dividends in arrears were $1,149,000 or $10.54
per share and $931,000 or $8.54 per share, respectively. All common
shares are of junior rank to the Series A Preferred Shares with respect
to the preferences as to dividends, distributions and payments upon the
liquidation, dissolution or winding up of the Company.
F-12
During the years ended June 30, 1994 and 1993, 8,000 and 14,000 Series A
Preferred Shares were converted to 22,000 and 42,000 shares of Common
Stock. There were no conversions of Series A Preferred Shares during the
year ended June 30, 1995.
COMMON STOCK
On January 22, 1993, the Company sold 3,175,000 shares of Common Stock in
a public offering at a price of $6.50 per share, resulting in net
proceeds to the Company of $18,484,000.
On February 8, 1993, the stockholders voted to increase the number of
authorized shares of Common Stock from 30,000,000 to 40,000,000.
On February 1, 1994, an option to purchase 150,000 shares of the
Company's Common Stock became exercisable. This option was granted to
the Company's Chairman of the Board in 1989 and became exercisable upon
the FDA's approval of ONCASPAR. The approval of ONCASPAR resulted in a
non-cash compensation charge representing the difference between the
exercise price of the option and the market value of the underlying
Common Stock.
On May 26, 1994, the Company sold 785,000 shares of Common Stock to
Susquehanna Brokerage Services, Inc. ("Susquehanna") in a public shelf
offering at a weighted average price of $2.55 per share, resulting in net
proceeds to the Company of approximately $1,632,000.
During the year ended June 30, 1995, the Company sold to Susquehanna, in
a public shelf offering, an additional 954,000 shares of newly issued
Common Stock. The shares were sold at a weighted average price of $2.06
per share, resulting in net proceeds to the Company of approximately
$1,752,000. On January 5, 1995 the Company terminated its stock purchase
agreement with Susquehanna.
On April 1, 1995, the Company issued 100,000 shares of newly issued,
unregistered Common Stock, valued at $2.25 per share, in consideration
for an option to purchase the facility it currently leases in Piscataway,
New Jersey.
On June 30, 1995, in conjunction with the license of know-how related to
PEG-INTRON A, the Company sold 847,000 shares of newly issued,
unregistered Common Stock to Schering Corporation, resulting in net
proceeds of approximately $1,983,000 (see note 10).
Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company.
As of June 30, 1995, the Company has reserved its common shares for
special purposes as detailed below:
F-13
<TABLE>
<CAPTION>
Shares issuable upon conversion 248,000
of preferred stock
<S> <C>
Non-Qualified Stock Option Plan 4,477,000
Other options 200,000
4,925,000
</TABLE>
SERIES A PREFERRED STOCK WARRANTS
In connection with the private placement of the Series A Preferred
Shares, the Company issued warrants to purchase 82,000 Series A Preferred
Shares. Prior to the year ended June 30, 1995, 22,000 warrants were
exercised. During the year ended June 30, 1995, the remaining warrants
expired.
ENZON LABS WARRANTS
In connection with the acquisition of Enzon Labs Inc., the Company agreed
to issue warrants to purchase 583,000 shares of Common Stock. Prior to
the year ended June 30, 1995, 100 warrants were exercised. During the
year ended June 30, 1995, the remaining warrants expired.
(8) NON-QUALIFIED STOCK OPTION PLAN
In November 1987, the Company's Board of Directors adopted a Non-
Qualified Stock Option Plan (the "Plan"). On December 7, 1993, the
stockholders voted to increase the number of shares reserved for issuance
under the Plan from 4,000,000 to 5,000,000. Under the Plan, as amended,
4,477,000 shares of Common Stock as of June 30, 1995 are reserved for
issuance pursuant to options which may be granted to employees, non-
employee directors or consultants to the Company. The exercise price of
the options must be at least 100% of the fair market value of the stock
at the time the option is granted and an option may be exercised for a
period of up to ten years from the date it is granted. The other terms
and conditions of the options generally are to be determined by the Board
of Directors, or an option committee appointed by the Board, at their
discretion.
A summary of the activity relating to the Plan follows:
<TABLE>
<CAPTION>
Number of shares
UNDER OPTION
<S> <C>
Outstanding at July 1, 1992 1,625,000
Granted at prices ranging from $4.25 to $9.00 467,000
Exercised at prices ranging from $3.75 to $4.38 (25,000)
Cancelled at prices ranging from $6.00 to $11.50 (26,000)
Outstanding at June 30, 1993 2,041,000
</TABLE>
F-14
<TABLE>
<CAPTION>
Granted at prices ranging from $2.38 to $6.00 1,292,000
<S> <C>
Exercised at prices ranging from $3.75 to $4.88 (140,000)
Cancelled at prices ranging from $4.00 to $14.88 (355,000)
Outstanding at June 30, 1994 2,838,000
Granted at prices ranging from $1.88 to $3.13 1,412,000
Cancelled at prices ranging from $2.09 to $15.25 (645,000)
Outstanding at June 30, 1995 3,605,000
</TABLE>
At June 30, 1995, 2,257,000 options were exercisable at prices per share
ranging from $2.00 to $14.88.
On August 24, 1994, the Compensation Committee of the Board of Directors
of the Company extended the exercise period of all outstanding five year
options to ten years under the Plan. None of the options extended had
exercise prices less than the fair market value of the Company's Common
Stock on August 24, 1994, and accordingly, no compensation expense was
recorded.
(9) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes" as of July 1, 1993. Under
the asset and liability method of 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. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date. The effects of adopting SFAS No. 109 were not material to the
financial statements at July 1, 1993.
At June 30, 1995 and 1994, the tax effects of temporary differences that
give rise to the deferred tax assets and deferred tax liabilities are as
follows:
1995 1994
Deferred tax assets:
Inventories $57,000 $450,000
Investment valuation reserve 86,000 86,000
Contribution carryover 10,000 9,000
Compensated absences 103,000 138,000
Excess of financial statement over tax depreciation146,000 -
Royalty advance - RPR 1,340,000 -
Sanofi liability 524,000 524,000
Non-deductible expenses 457,000 424,000
Federal and state net operating loss carryforwards35,816,000 35,054,000
Research and development and investment tax credit carryforwards5,770,000
5,688,000
F-15
Total gross deferred tax assets 44,309,000 42,373,000
Less valuation allowance (43,597,000) (41,410,000)
Net deferred tax assets 712,000 963,000
Deferred tax liabilities:
Excess of tax over financial statement depreciation - (231,000)
Step up in basis of assets related to acquisition of Enzon Labs Inc.
(712,000) (732,000)
Total gross deferred tax liabilities (712,000) (963,000)
Net deferred tax $0 $0
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
valuation allowance for deferred tax assets as of July 1, 1993 was
$34,053,000. The net change in the total valuation allowance for the
years ended June 30, 1995 and 1994 were increases of $2,187,000 and
$7,357,000, respectively. Subsequently recognized tax benefits for the
years ended June 30, 1995 and 1994 of $940,000 and $1,025,000 relating to
the valuation allowance for deferred tax assets will be allocated to
additional paid-in capital.
At June 30, 1995, the Company had federal net operating loss
carryforwards of approximately $90,627,000 for tax reporting purposes,
which expire in the years 1997 to 2010. The Company also has investment
tax credit carryforwards of approximately $30,000 and research and
development tax credit carryforwards of approximately $5,740,000 for tax
reporting purposes which expire in the years 1998 to 2010.
As part of the Company's acquisition of Enzon Labs Inc., the Company
acquired the net operating loss carryforwards of Enzon Labs Inc. of
$67,949,000 which expire between October 31, 1994 and October 31, 2006.
As a result of the change in ownership the utilization of these
carryforwards is limited to $613,000 per year.
(10) SIGNIFICANT AGREEMENTS
RHONE-POULENC RORER AGREEMENT
The Company has granted RPR an exclusive license ("the License
Agreement") in the United States to sell ONCASPAR, and any other PEG-
asparaginase product (the "Product") developed by Enzon or RPR during the
term of the License Agreement. Under this agreement, Enzon was entitled
to licensing payments totaling $6,000,000, of which $500,000 and
$5,500,000 were paid during the fiscal years ended June 30, 1995 and
1994, respectively.
F-16
During January 1995, the Company amended its exclusive U.S. marketing
rights license with RPR for ONCASPAR. Under the amended agreement, Enzon
will earn a base royalty of 10% for the year ending December 31, 1995 and
23.5% thereafter, until 2008, on net sales of ONCASPAR up to agreed upon
amounts, as opposed to 50% of net profits provided for under the original
agreement. Additionally, Enzon will earn a super royalty of 23.5% for
the year ending December 31, 1995 and 43.5% thereafter, until 2008 on net
sales of ONCASPAR which exceed the agreed upon amounts, with the
limitation that the total royalties earned for any such year shall not
exceed 33% of net sales. The amendment eliminates RPR's requirement to
make certain minimum advertising, promotional and clinical expenditures.
Future decisions regarding clinical development will be at RPR's
discretion. The amended agreement also provides for a payment of
$3,500,000 in advance royalties, which was received in January 1995.
Base royalties due under the amended agreement will be offset against a
credit of $5,970,000 (which represents the royalty advance plus
reimbursement of certain amounts due to RPR under the previous agreement
and interest expense) before cash payments for base royalties will be
made. Super royalties will be paid to the Company when earned. The
royalty advance is shown as a long term liability, with the corresponding
current portion included in accrued expenses on the Consolidated Balance
Sheet as of June 30, 1995. The royalty advance will be reduced as base
royalties are recognized under the agreement.
The agreement prohibits RPR from selling a competing PEG-asparaginase
product anywhere in the world during the term of the License Agreement
and for five years thereafter. The revised License Agreement terminates
in December 2008, subject to early termination by either party due to a
default by the other or by RPR at any time on one year's prior notice to
Enzon. Upon any termination all rights under the License Agreement
revert to Enzon.
The Company has also granted exclusive licenses to sell ONCASPAR in
Canada and Mexico to RPR. These agreements provide for RPR to obtain
marketing approval of ONCASPAR in Canada and Mexico and for the Company
to receive royalties on sales of ONCASPAR in these countries, if any.
The Company is currently pursuing other licenses for marketing and
distribution rights for ONCASPAR outside North America. A separate
supply agreement with RPR requires RPR to purchase from Enzon all of
RPR's requirements for the Product for sales in North America.
SANOFI WINTHROP AGREEMENT
In June 1989, the Company, Sanofi Winthrop, Inc. ("Sanofi"), formerly
Sterling Winthrop, Inc. and Eastman Kodak Company ("Kodak") signed a
license agreement (the "Sanofi Agreement") which supersedes the Company's
March 1987 license agreement with Kodak (the "Kodak License Agreement").
Sterling Winthrop, Inc., a subsidiary of Kodak, was sold in 1994 to
Sanofi Pharmaceuticals. The Company received $5,000,000 and $2,000,000
under the Sanofi Agreement during the years ended June 30, 1989 and 1990,
respectively, and transferred to Sanofi all responsibilities for
development and regulatory approval in the United States for PEG-
superoxide dismutase ("PEG-SOD") and certain technological know-how for
the product. All future development and regulatory approval costs for
PEG-SOD, including the cost of unmodified enzymes for the product used in
pre-approval testing, will be borne by Sanofi.
F-17
Under the agreement, Sanofi has the exclusive worldwide marketing rights,
foreign regulatory approval responsibility and foreign manufacturing
rights for PEG-SOD. Generally, the Company will be entitled to 40% of
the net profits from sales of PEG-SOD in the United States during the
life of the basic U.S. patent covering the product, with agreed-upon
limits on the amount of expenses that can be deducted by Sanofi from
revenues, if any, before calculating the profit split. Under the Sanofi
Agreement, Enzon is entitled to manufacture PEG-SOD for United States
sales by Sanofi; however, Sanofi has the right to take over such
manufacturing or have such manufacturing performed on its behalf in
consideration for the payment, under certain circumstances, of an
additional royalty. Sanofi is manufacturing the PEG-SOD utilized in its
clinical trials and the Company expects that Sanofi will manufacture the
product for U.S. sales if it is approved by the FDA.
The Sanofi Agreement terminates on a country by country basis upon the
expiration of the last to expire of the patents licensed to the Company
under its License Agreement with RCT. The United States patent licensed
to Enzon under the RCT Agreement expires in December 1996. The Company
has entered into an agreement with RCT to extend this patent for up to
five years. Upon such patent expiration or termination of the Sanofi
Agreement due to the Company's breach of the agreement or bankruptcy, the
license granted to Sanofi automatically converts to a non-exclusive,
royalty-free, paid-up license, except that Sanofi may maintain an
exclusive license with respect to PEG-SOD by paying the Company a reduced
royalty on Sanofi's sales of PEG-SOD. Sanofi has the right to terminate
the Sanofi Agreement at any time with respect to any or all of the
countries which are covered by the agreement with no further obligation
to the Company, in which case all rights terminated by Sanofi in this
manner shall revert to the Company.
Under the original Kodak License Agreement signed in March 1987, the
Company issued 2,000,000 shares of its Common Stock to Kodak for a cash
payment of $6,000,000. The Company also received $9,000,000 under this
agreement to fund all activities to obtain FDA approval of PEG-SOD. The
Sanofi Agreement requires a credit to Sanofi (the "shortfall") for monies
not expended for the development of PEG-SOD under the Kodak Agreement.
The shortfall balance as of June 30, 1995 and 1994, was $1,313,000, and
is shown as a current liability in the Consolidated Balance Sheets. The
shortfall may be applied by Sanofi as a credit against amounts owed the
Company by Sanofi for clinical supplies. 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.
SCHERING AGREEMENT
In November 1990, Enzon and Schering Corporation ("Schering") signed an
agreement (the "Schering Agreement") to apply the PEG Process to
Schering's INTRON A (interferon alfa 2b), a genetically-engineered
anticancer and antiviral drug. In August 1992, a Phase I human clinical
trial began using PEG-INTRON A for the indication of hepatitis. The
protocol for that trial has been completed. Schering and Enzon amended
the Schering Agreement to develop a PEG-INTRON A formulation having
improved performance characteristics. Enzon has prepared and delivered
clinical batches of the new PEG-INTRON A formulations to Schering for
additional clinical trials.
F-18
On June 30, 1995, the Company and Schering further amended the Schering
Agreement pursuant to which Enzon agreed to transfer proprietary know-how
and manufacturing rights for PEG-INTRON A to Schering for $3,000,000, of
which $2,000,000 was paid on June 30, 1995 and $1,000,000 will be paid
upon completion of the know-how transfer, as defined in such amended
agreements. In connection with the amendment, the Company also sold to
Schering 847,000 shares of unregistered, newly issued Common Stock for
$2,000,000 in gross proceeds. Under the current Schering Agreement,
Enzon retained an option to become Schering's exclusive manufacturer of
PEG-INTRON A for the United States market upon FDA approval of such
product.
Under the Schering Agreement, Enzon is entitled to receive sequential
payments, totalling approximately $6,000,000, subject to the achievement
of certain milestones in the product's development program, as well as
payments for the clinical material it produces. During the year ended
June 30, 1992, the Company received the first milestone payment of
$450,000 related to the filing of an Investigational New Drug
Application. The Company will also receive royalties on worldwide sales
of PEG-INTRON A, if any. Schering will be responsible for conducting and
funding the clinical studies, obtaining regulatory approval and marketing
the product worldwide on an exclusive basis.
The Schering Agreement terminates, on a country-by-country basis, upon
the expiration of the last to expire of any future patents covering the
product which may be issued to Enzon, or 15 years after the product is
approved for commercial sale, whichever shall be the later to occur. This
agreement is subject to Schering's right of early termination if the
product does not meet specifications, or if Enzon fails to obtain or
maintain the requisite product liability insurance, or if Schering makes
certain payments to Enzon. If Schering terminates the agreement because
the product does not meet specifications, Enzon may be required to refund
certain of the milestone payments.
BAXTER AGREEMENT
In November 1992, Enzon and Baxter Healthcare Corporation ("Baxter")
signed an agreement granting Baxter a non-exclusive worldwide license to
Enzon's SCA protein technology. It is anticipated that Baxter's biotech
group will use the SCA proteins in its cancer research programs focusing
on human stem cell isolation and gene therapy.
Under the agreement, the Company received $350,000 during the year ended
June 30, 1993 for the execution of the agreement and is entitled to
additional sequential payments, subject to the achievement of certain
milestones in the products' development of $500,000 for each product
developed up to a maximum of $2,500,000. Baxter will have the exclusive
worldwide rights to manufacture and market any products which it develops
and Enzon will receive certain royalties on Baxter's sales, if any.
ELI LILLY (HYBRITECH) AGREEMENT
In December 1992, Enzon and Hybritech Incorporated ("Hybritech"), a
subsidiary of Eli Lilly & Co., signed an agreement granting Hybritech a
non-exclusive worldwide license to Enzon's SCA protein technology. Under
the agreement, Enzon is entitled to certain upfront payments totalling
$1,200,000, of which $700,000 and $500,000 were received during the years
ended June 30, 1994 and 1993, respectively, and will receive certain
royalties on Hybritech sales of products, if any, that may be developed
using Enzon's SCA protein technology.
F-19
BRISTOL-MYERS SQUIBB
In September 1993, the Company and Bristol-Myers Squibb ("Bristol-Myers")
signed a license agreement for Enzon's SCA protein technology granting
Bristol-Myers a worldwide, semi-exclusive license for a particular
antigen. Under the agreement, Enzon is entitled to receive certain
upfront payments and sequential payments, subject to the achievement of
certain milestones in the development program. Bristol-Myers will have
the right to manufacture and market products which it develops and Enzon
will receive certain royalties on Bristol-Myers sales, if any. Enzon
also granted Bristol-Myers options to take non-exclusive licenses under
patent rights for other applications/fields for certain additional
payments. During the year ended June 30, 1994, Enzon received $200,000
under this agreement. In July 1994, Bristol-Myers paid $1,800,000 to
Enzon and exercised its option to acquire a worldwide non-exclusive
license for SCA protein technology. The non-exclusive license is for all
areas of drug development.
(11) LEASES
The Company has several leases for office, warehouse, production and
research facilities and equipment.
Future minimum lease payments, net of subleases, for noncancellable
operating leases (with initial or remaining lease terms in excess of one
year) and the present value of future minimum capital lease payments as
of June 30, 1995 are:
Year ending Capital Operating
JUNE 30, LEASES LEASES
1996 $2,000 $1,592,000
1997 2,000 1,699,000
1998 2,000 1,710,000
1999 - 1,130,000
2000 - 497,000
Later years, through 2007 - 3,878,000
Total minimum lease payments$6,000 $10,506,000
Rent expense amounted to $1,642,000, $2,181,000 and $2,469,000 for the
years ended June 30, 1995, 1994 and 1993, respectively.
The Company currently subleases a portion of two of its facilities. For
the years ended June 30, 1995 and 1994, rent expense is net of subrental
income of $353,000 and $101,000, respectively. There were no subleases
in the year ended June 30, 1993.
(12) CASH SURRENDER VALUE OF LIFE INSURANCE
As of June 30, 1995, the Company maintains a split-dollar life insurance
for its Chairman of the Board with a face value of $3,000,000. Under the
split-dollar agreement, in the event of death, the Company will receive
the greater of the cash accumulation value or the premiums paid. The
remainder of the death benefit, as defined, paid by the insurance
company, will be paid to the named beneficiaries of the insured. The
Company also maintains key man life insurance policies with a face value
of $1,000,000 on both the President and Chief Executive Officer and the
Chairman of the Board.
F-20
In July 1992, the Company took a loan against the split dollar life
insurance policy for $674,000. At June 30, 1995 and 1994, the cash
surrender value of $847,000 and $1,155,000, respectively, less the
outstanding loan balance and accrued interest of $847,000 and $782,000,
respectively, is recorded in other assets in the Consolidated Balance
Sheets.
During the year ended June 30, 1995, the Company cancelled a separate
single premium key man life insurance policy on its Chairman of the Board
and received the cash surrender value of $305,000.
(13) RETIREMENT PLANS
The Company maintains a defined contribution, 401(k), pension plan for
substantially all its employees. Effective July 1, 1991, the Company
revised the plan to provide for a match of employee contributions to the
plan. The Company matches 25% of the employee's contribution up to 6% of
compensation, as defined. Effective, January 1, 1995, the Company's
match is invested solely in a fund which purchases the Company's Common
Stock in the open market. Total Company contributions for the years
ended June 30, 1995, 1994 and 1993 were $80,000, $94,000 and $93,000,
respectively.
(14) ACCRUED EXPENSES
Accrued expenses consist of:
JUNE 30,
1995 1994
Accrued wages and vacation $398,000 $1,260,000
Reserve for product returns 298,000 600,000
Accrued employee medical claims278,000 537,000
Accrued Medicaid rebates 813,000 435,000
Accrued restructuring costs 758,000 -
Current portion of royalty
advance - RPR 400,000 -
Other 1,100,000 1,406,000
$4,045,000 $4,238,000
(15) FOURTH QUARTER INFORMATION
During the fourth quarter of the year ended June 30, 1994, the Company
recorded a charge to operations for excess raw material (PEG) of
$618,000.
(16) SALES INFORMATION
During the years ended June 30, 1995, 1994 and 1993, the Company had
export sales of $2,105,000, $2,085,000, and $1,631,000, respectively.
Sales to Europe represented $1,841,000, $1,957,000 and $1,346,000 during
the years ended June 30, 1995, 1994 and 1993, respectively.
Approximately 42%, 28% and 15% of the Company's ADAGEN sales for the
years ended June 30, 1995, 1994 and 1993, respectively, were made
to Medicaid patients.
(17) OTHER INCOME
During the year ended June 30, 1995, the Company received approximately
$645,000 for an insurance settlement related to ADAGEN that was destroyed
in shipment.
F-21
EXHIBIT INDEX
Exhibit Page
NUMBERS DESCRIPTION NUMBER
10.17 Amendment to Employment Agreement with Peter G. Tombros dated
as of May 15, 1995 E1
21.0 Subsidiaries of Registrant E2
23.0 Consent of KPMG Peat Marwick LLP E3
23.1 Consent of Lerner, David, Littenberg, Krumholz & MentlikE4
As of May 15, 1995
Mr. Peter G. Tombros
159 Lambert Road
New Canaan, CT 06840
Re: AMENDMENT TO EMPLOYMENT AGREEMENT
Dear Peter:
This letter agreement, when signed by you, will serve as a first
amendment to your employment agreement with Enzon, Inc. (the "Company") dated
as of March 25, 1994 (the "Employment Agreement").
Pursuant to Section 3(b) of the Employment Agreement, you are entitled to
receive an award (the "Award") under the Company's Total Compensation Program
for Officers and Senior Executives (the "Program") based on the completion of
your first year of employment with the Company. The Employment Agreement
further provides that the Award is to consist of an option granted under the
Company's Non-Qualified Stock Option Plan (the "Plan") and cash having the
value and based on the terms set forth therein.
This will confirm our agreement that you will not receive the Award for
the completion of your first year of employment with the Company as provided in
Section 3(b) of the Employment Agreement, and in lieu thereof, the Company
shall grant to you an option (the "Option") under the Plan to purchase 84,000
shares of the Company's common stock, $.01 par value (the "Common Stock"). The
exercise price per share of Common Stock shall be $2.00, which is the fair
market value of a share of Common Stock on the date hereof. The Option shall
be exercisable as to 42,000 shares on May 15, 1996 and as to the remaining
42,000 shares on May 15, 1997 and shall terminate in its entirety on May 15,
2005. The Option is not being granted pursuant to the Program. Except as
provided herein, the Employment Agreement shall remain unchanged.
To evidence your agreement to the foregoing, kindly countersign this
letter on the line provided below.
Very truly yours,
ENZON, INC.
By:/S/ KENNETH J. ZUERBLIS
Name: Kenneth J. Zuerblis
Title: Vice President, Finance
AGREED AND ACCEPTED
/S/ PETER G. TOMBROS
Peter G. Tombros
E1
SUBSIDIARIES OF REGISTRANT
Symvex Inc. is a wholly-owned subsidiary of the Registrant incorporated in the
State of Delaware. Symvex Inc. did business under its own name.
Enzon Labs Inc., is a wholly-owned subsidiary of the Registrant incorporated in
the State of Delaware. Enzon Labs Inc. does business under its own name.
Enzon Pharm. B.V. is a wholly-owned subsidiary of the Registrant incorporated
in the Netherlands.
Enzon GmbH is a wholly-owned subsidiary of the Registrant incorporated in
Germany.
E2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Enzon Inc.:
We consent to incorporation by reference in the Registration Statement No. 33-
50904 on Form S-8 of Enzon, Inc. of our report dated September 21, 1995,
relating to the consolidated balance sheets of Enzon, Inc. and subsidiaries as
of June 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1995, which report appears in the June 30,
1995 annual report on Form 10-K of Enzon, Inc.
/S/KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
New York, New York
September 27, 1995
E3
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under the caption
"Business - Patents" in the Annual Report on Form 10-K of Enzon, Inc. for the
fiscal year ended June 30, 1995.
/S/LERNER, DAVID, LITTENBERG,
KRUMHOLZ & MENTLIK
September 22, 1995 Lerner, David, Littenberg,
Krumholz & Mentlik
E4
