ENZON PHARMACEUTICALS, INC. The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and notes to those statements included elsewhere in this Annual Report on Form 10-K.
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Forward-Looking Information and Factors That May Affect Future Results
The following discussion contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in the following discussion, other than statements that are purely historical, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "could," "potential," "anticipates," "estimates," "plans," "would," or "intends" or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to risks and uncertainties that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements, including the risks and uncertainties set forth in Item 1A. Risk Factors. These risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. As such, we cannot assure you that the future results covered by the forward-looking statements will be achieved.
The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars.
Overview
During 2020, the Company adopted a Section 382 rights plan and completed a
Rights Offering, each as further described below. As a result of the successful
completion of the Rights Offering, we are positioned as a public company
acquisition vehicle, where we can become an acquisition platform and more fully
utilize our NOLs and enhance stockholder value. We intend to acquire profitable
businesses, entities or revenue streams that will generate sufficient income so
that we can utilize our approximately
Prior to 2017, the primary source of our royalty revenues was derived from sales
of PegIntron, which is marketed by Merck. We currently have no clinical
operations and limited corporate operations. We have no intention of resuming
any clinical development activities. Royalty revenues from sales of PegIntron
accounted for 0% and (4)% of our total revenues for the years ended
We have a marketing agreement with
In a filing with the
Due to the challenges associated with developing and obtaining approval for drug products, and the lack of our involvement in the development and approval process, there is substantial uncertainty as to whether we will receive any milestone or royalty payments under the Micromet Agreement. We will not recognize revenue until all revenue recognition requirements are met.
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We may be entitled to certain potential future milestone payments contingent upon the achievement of certain regulatory approval-related milestones by third-party licensees. We cannot assure you that we will receive any milestone payments resulting from our agreements with any of our third-party licensees or that any sales of related products will be made. We will not recognize revenue from any of our third-party licensees until all revenue recognition requirements are met.
Results of Operations (in thousands of dollars):
For the
Year Ended December 31,
2022 2021
Revenues:
Royalties and milestones, net $ 26 $ 701
Total revenues 26 701
Operating expenses:
General and administrative 1,058 1,170
Operating loss (1,032) (469)
Other income 646 7
Income tax benefit (expense) 200 (7)
Net loss $ (186) $ (469)
Overview
The following table summarizes our royalties earned in 2022 and 2021:
Royalties and Milestones Revenues (in thousands of dollars):
For the Year Ended December 31,
%
2022 Change 2021
Royalties and milestones revenues 26 (96) 701
In 2022, we earned no net royalties and milestones from Sesen and, in 2021, we
earned total net royalties and milestones revenues of approximately
At
We believe that we will receive little or no additional royalties from Merck and may incur additional chargebacks from returns and rebates in amounts that, based on current estimates, are not believed to be material. As reported by Merck, in recent years, sales declines were driven by lower volumes in nearly all regions, as the availability of new therapeutic options resulted in continued loss of market share.
Other Income (in thousands of dollars):
For the Year Ended December 31,
%
2022 Change 2021
Other income $ 646 9,129 $ 7
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Other income is attributable to the interest and dividends received on the
invested cash we received from the
General and Administrative Expenses (in thousands of dollars):
For the Year Ended December 31,
%
2022 Change 2021
General and administrative expenses
For the year ended
In 2022 and 2021, general and administrative expenses consisted primarily of insurance expenses, consulting fees for executive services, outside professional services for accounting, audit, tax and legal services.
Income Taxes
As a result of our expenses exceeding our royalty and milestone income for the
year ended
Our management will continue to assess the need for this valuation allowance and will make adjustments when appropriate. Additionally, our management believes that our NOLs will not be limited by any changes in the Company's ownership as a result of the successful completion of the Rights Offering. (See Note 13 to the Consolidated Financial Statements.)
These projections and beliefs are based upon a variety of estimates and numerous assumptions made by our management with respect to, among other things, interest rates, forecasted sales of the drug products for which we have the right to receive royalties, our ability to acquire profitable businesses, entities or revenue streams that will generate sufficient income so that we can utilize our NOLs and other matters, many of which are difficult to predict, are subject to significant uncertainties and are beyond our control. As a result, we cannot assure you that the estimates and assumptions upon which these projections and beliefs are based will prove accurate, that the projected results will be realized or that the actual results will not be substantially higher or lower than projected.
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Section 382 Rights Plan
On
Rights Offering
On
With regard to the Series C Preferred Stock, on an annual basis, the Company's
Board of Directors may, at its sole discretion, cause a dividend with respect to
the Series C Preferred Stock to be paid in cash to the holders in an amount
equal to 3% of the liquidation preference as in effect at such time (initially
As of
We believe that the completion of the Rights Offering will not limit the use of our NOLs due to any Section 382 limitations.
As the Company's Board declared a dividend on the Series C Preferred Stock as of
Liquidity and Capital Resources
Our current source of liquidity is our existing cash on hand, which includes the
approximately
While we are positioned as a public company acquisition vehicle, where we can become an acquisition platform and more fully utilize our NOLs and enhance stockholder value, we cannot assure you that we will succeed in making acquisitions that are profitable and that will enable us to utilize our NOLs.
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Net cash used in operating activities represents net loss, as adjusted for
certain non-cash items including the effect of changes in operating assets and
liabilities. Net cash used in operating activities during 2022 was
No cash was provided by financing or investing activities in 2022 or 2021.
The net effect of the foregoing was a decrease of cash of approximately
Off-Balance Sheet Arrangements
We do not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow limited purposes. As of
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our consolidated financial statements are presented in accordance with
accounting principles that are generally accepted in the
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.
Revenues
Royalties under our agreements with third parties and pursuant to the sale of our former specialty pharmaceutical business are recognized when reasonably determinable and earned through the sale of the product by the third party and collection is reasonably assured. Notification from the third-party licensee of the royalties earned under the license agreement is the basis for royalty revenue recognition. This information generally is received from the licensees in the quarter subsequent to the period in which the sales occur.
Contingent payments with third parties and pursuant to the sale of our former specialty pharmaceutical business are recognized as income when the milestone has been achieved and collection is assured, such payments are non-refundable and no further effort is required on our part or the other party to complete the earning process.
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Income Taxes
Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance on net deferred tax assets is
provided for when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. As of
We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that we will be able to sustain our position.
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