UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------
For the Quarter Ended December 31, 1999 Commission File No. 0-12957
[GRAPHIC OMITTED] ENZON, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2372868
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 Kingsbridge Road, Piscataway, New Jersey 08854
(Address of principal executive offices) (Zip Code)
(732) 980-4500
(Registrant's telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
The number of shares of common stock, $.01 par value, outstanding as of February
8, 2000 was 37,956,086 shares.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 1999 and June 30, 1999
December 31, June 30,
1999 1999
(unaudited) *
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $23,261,685 $24,673,636
Accounts receivable 4,701,186 4,604,847
Inventories 1,423,507 1,326,601
Other current assets 1,738,367 1,034,327
----------- -----------
Total current assets 31,124,745 31,639,411
----------- -----------
Property and equipment 11,951,345 12,054,505
Less accumulated depreciation and amortization 10,497,269 10,649,661
----------- -----------
1,454,076 1,404,844
----------- -----------
Other assets:
Investments 68,823 68,823
Other assets, net 807,711 753,683
Patents, net 977,883 1,049,554
----------- -----------
1,854,417 1,872,060
----------- -----------
Total assets $34,433,238 $34,916,315
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,783,726 $1,716,089
Accrued expenses 8,232,526 6,261,640
----------- -----------
Total current liabilities 10,016,252 7,977,729
----------- -----------
Accrued rent 621,152 634,390
Royalty advance - RPR 815,583 728,977
----------- -----------
1,436,735 1,363,367
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock-$.01 par value, authorized
3,000,000 shares: issued and outstanding 27,000
shares at December 31, 1999 and 107,000
at June 30, 1999 (liquidation preference
aggregating $1,189,000 at December 31,
1999 and $4,659,000 at June 30, 1999) 270 1,070
Common stock-$.01 par value, authorized
60,000,000 shares; issued and outstanding
37,209,146 shares at December 31, 1999 and
36,488,684 shares at June 30, 1999 372,091 364,886
Additional paid-in capital 149,371,514 146,970,289
Accumulated deficit (126,763,624) (121,761,026)
----------- -----------
Total stockholders' equity 22,980,251 25,575,219
----------- -----------
Total liabilities and stockholders' equity $34,433,238 $34,916,315
=========== ===========
*Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
2
ENZON, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended December 31, 1999 and 1998
(Unaudited)
Three months ended Six months ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenues
Sales $ 3,746,768 $ 3,782,411 $ 6,616,903 $ 6,718,113
Contract revenue 18,304 15,510 61,982 67,475
------------ ------------ ------------ ------------
Total revenues 3,765,072 3,797,921 6,678,885 6,785,588
------------ ------------ ------------ ------------
Costs and expenses
Cost of sales 792,921 1,028,945 1,971,482 2,338,796
Research and development expenses 1,932,969 1,847,565 3,590,252 3,422,911
Selling, general and administrative expenses 2,810,438 2,108,376 5,136,409 3,643,655
------------ ------------ ------------ ------------
Total costs and expenses 5,536,328 4,984,886 10,698,143 9,405,362
------------ ------------ ------------ ------------
Operating loss (1,771,256) (1,186,965) (4,019,258) (2,619,774)
------------ ------------ ------------ ------------
Other income (expense)
Interest and dividend income 298,725 300,315 599,222 602,881
Interest expense (926) (2,619) (3,884) (8,055)
Other (36,274) 39,104 (36,274) 39,834
------------ ------------ ------------ ------------
261,525 336,800 559,064 634,660
------------ ------------ ------------ ------------
Net loss ($ 1,509,731) ($ 850,165) ($ 3,460,194) ($ 1,985,114)
============ ============ ============ ============
Basic and diluted loss per common share ($ 0.04) ($ 0.03) ($ 0.09) ($ 0.06)
============ ============ ============ ============
Weighted average number of common shares
issued and outstanding 37,020,464 35,611,863 36,835,399 35,181,937
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
3
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1999 and 1998
(Unaudited)
Six Months Ended
December 31, December 31,
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss ($ 3,460,194) ($ 1,985,114)
Adjustment for depreciation and amortization 243,212 559,869
Loss (gain) on retirement of equipment 36,274 (39,834)
Non-cash expense for issuance of common stock and stock options 207,770 242,497
Decrease in accrued rent (13,238) (79,533)
Increase (decrease) in royalty advance - RPR 5,219 (110,507)
Changes in assets and liabilities 1,168,597 (1,906,039)
------------ ------------
Net cash used in operating activities (1,812,360) (3,318,661)
------------ ------------
Cash flows from investing activities:
Capital expenditures (257,047) (137,875)
Proceeds from sale of equipment -- 129,872
------------ ------------
Net cash used in investing activities (257,047) (8,003)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 2,199,860 20,583,850
Dividends paid on Series A Preferred Stock (1,542,404) --
------------ ------------
Net cash provided by financing activities 657,456 20,583,850
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,411,951) 17,257,186
Cash and cash equivalents at beginning of period 24,673,636 6,478,459
------------ ------------
Cash and cash equivalents at end of period $ 23,261,685 $ 23,735,645
============ ============
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
4
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared
from the books and records of Enzon, Inc. and subsidiaries in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal and
recurring adjustments) considered necessary for a fair presentation have been
included. Interim results are not necessarily indicative of the results that may
be expected for the year.
(2) Loss Per Common Share
Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for cumulative undeclared preferred stock dividends of
$14,000 and $54,000 for the three months ended December 31, 1999 and 1998, and
$27,000 and $107,000 for the six months ended December 31, 1999 and 1998,
respectively, divided by the weighted average number of shares issued and
outstanding during the periods. Due to the net loss recorded for the three and
six months ended December 31, 1999 and 1998, the exercise or conversion of all
dilutive potential common shares is not included for purposes of the diluted
loss per share calculation. As of December 31, 1999, the Company had 6,842,000
common stock equivalents outstanding that could potentially dilute future
diluted earnings per share calculations.
(3) Inventories
The composition of inventories at December 31, 1999 and June 30, 1999 is as
follows:
December 31, June 30,
1999 1999
------------ ----------
Raw materials $240,000 $503,000
Work in process 1,017,000 548,000
Finished goods 167,000 276,000
---------- ----------
$1,424,000 $1,327,000
========== ==========
(4) Cash Flow Information
Highly liquid securities with original maturities of three months or less
are considered to be cash equivalents. Cash payments for interest were
approximately $4,000 for the six months ended December 31, 1999 and $8,000 for
the six months ended December 31, 1998. There were no income tax payments made
for the six months ended December 31, 1999 and 1998. During the six months ended
December 31, 1999, 80,000 shares of Series A Cumulative Convertible Preferred
Stock ("Series A Preferred Stock") were converted to 181,818 shares of Common
Stock. Accrued dividends on the converted preferred shares of $1,542,000 were
settled by a cash payment. There were no conversions of Series A Preferred Stock
during the six months ended December 31, 1998.
5
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(5) Non-Qualified Stock Option Plan
On December 7, 1999 the stockholders voted to increase the number of shares
reserved for issuance under our Non-Qualified Stock Option Plan from 6,200,000
to 7,900,000. During the six months ended December 31, 1999, we issued 209,000
stock options at an average exercise price of $29.07 per share under our
Non-Qualified Stock Option Plan, as amended, of which 77,000 were granted to
executive officers as part of a bonus plan for the year ended June 30, 1999.
None of the options granted during the period are exercisable as of December 31,
1999. All options were granted with exercise prices that equaled or exceeded the
fair market value of the underlying stock on the date of grant.
(6) Business Segments
A single management team that reports to the Chief Executive Officer
comprehensively manages our business operations. We do not operate separate
lines of business or separate business entities with respect to any of our
approved products or product candidates. In addition, we do not conduct any
operations outside of the United States. We do not prepare discrete financial
statements with respect to separate product areas. Accordingly, we do not have
separately reportable segments as defined by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
(7) Comprehensive Loss
The net loss of $1,510,000 and $850,000, recorded for the three months
ended December 31, 1999 and 1998 and $3,460,000 and $1,985,000, recorded for the
six months ended December 31, 1999 and 1998, respectively, is equal to the
comprehensive loss for those periods.
(8) Commitments and Contingencies
We are being sued, in the United States District Court for the District of
New Jersey, by a former financial advisor asserting that under a May 2, 1995
letter agreement between us and LBC Capital Resources Inc., LBC was entitled to
a commission in connection with our January and March 1996 private placements,
comprised of $500,000 and warrants to purchase 1,000,000 shares of our common
stock at an exercise price of $2.50 per share. LBC has claimed $3,000,000 in
compensatory damages, plus punitive damages, counsel fees and costs for the
alleged breach of the letter agreement. We have entered into an agreement with
LBC (Stipulation of Damages) that if we are found liable to LBC in this suit the
damages for these claims would be limited to $2,750,000 in cash. LBC has also
asserted that it is entitled to an additional fee of $175,000 and warrants to
purchase 250,000 shares of our common stock to the extent the warrants issued to
investors in the private placements are exercised. We believe that no
compensation is due to LBC under the letter agreement and deny any liability
under the letter agreement. We intend to defend this lawsuit vigorously and
believe the ultimate resolution of this matter will not have a material adverse
effect on our financial position. However, if we were required to issue warrants
to LBC we would be required to incur a non-cash expense for each warrant issued
equal to the difference between the exercise price of the warrants ($2.50) and
the then current market price of our common stock.
In January 2000, Hoffman-La Roche filed lawsuits in both the U.S. and
France against Schering-Plough alleging that PEG-Intron infringes certain
patents held by Hoffmann-La Roche. The validity and scope of Hoffmann-La Roche's
patents in this segment of the industry could be judicially determined during
these proceedings. This litigation is at a very early stage and we are not in a
position to predict its outcome. If Schering-Plough does not prevail in this
litigation, Hoffmann-La Roche may completely block Schering-Plough from
commercializing PEG-Intron and we will not receive any royalties on the sales of
PEG-Intron. This would have a material adverse effect on our business, financial
condition and results of operations.
In the course of normal operations, we are subject to the marketing and
manufacturing regulations as established by the Food and Drug Administration
("FDA"). We have agreed with the FDA to temporary labeling and distribution
modifications for ONCASPAR due to increased levels of particulates in certain
batches of ONCASPAR, which we manufactured. We, rather than our marketing
partner, Rhone-Poulenc Rorer ("RPR"), will temporarily distribute ONCASPAR
directly to patients, on an as needed basis. We will conduct additional
inspection and labeling procedures prior to distribution.
6
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
We have manufactured several batches of ONCASPAR which contain acceptable
levels of particulates and anticipate a final resolution of the problem during
fiscal 2000. It is expected that RPR will resume distribution of ONCASPAR at
that time. There can be no assurance that this solution will be acceptable to
the FDA. If we cannot resolve this problem it is possible that the FDA may not
permit us to continue to distribute this product. An extended disruption in the
marketing and distribution of ONCASPAR could have a material adverse impact on
future ONCASPAR sales.
We maintain a separate supply agreement with RPR, under which RPR purchases
from us all of RPR's requirements for ONCASPAR at a price defined in the supply
agreement. We are currently in discussions with RPR related to a disagreement
over the purchase price of ONCASPAR under the supply agreement we have with RPR.
RPR has asserted that we have overcharged them under the supply agreement in the
amount of $2,329,000. We believe our costing and pricing of ONCASPAR to RPR
complies with the supply agreement.
RPR has also asserted that we should be responsible for its lost profits
while ONCASPAR is under the temporary labeling and distribution modifications.
RPR contends that its lost profits through December 31, 1999 were $5,194,000. We
do not agree with RPR's claim for overcharges under the supply agreement and
lost profits. We do not believe the ultimate resolution of these matters will
have a material adverse effect on our financial results or operations, though it
could have a material adverse effect on our financial position.
(9) Schering Agreement
During December 1999, our development partner for PEG-Intron,
Schering-Plough submitted a U.S. marketing application to the FDA for the use of
PEG-Intron in the treatment of chronic hepatitis C. We are entitled to a $1
million milestone payment upon the FDA's acceptance of this filing.
Schering-Plough has also reported that it has submitted a centralized
Marketing Authorization Application for the use of PEG-Intron in the treatment
of chronic hepatitis C to the European Union's (EU) European Agency for the
Evaluation of Medicinal Products (EMEA).
Under the Company's licensing agreement with Schering-Plough, we are
entitled to royalties on worldwide sales of PEG-Intron. We will receive an
additional $2 million milestone payment upon FDA approval of PEG-Intron.
(10) Subsequent Events
During January 2000, all of the outstanding Series B Preferred Stock
warrants to purchase 657,895 shares of Common Stock were exercised. This
exercise resulted in net proceeds of approximately $2,625,000.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information contained herein contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999,
which is incorporated herein by reference, constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
vary materially from the future results indicated in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the future results indicated in such forward-looking statements.
Results of Operations
Three months ended December 31, 1999 vs. Three months ended December 31, 1998
Revenues. Revenues for the three months ended December 31, 1999 were $3,765,000,
as compared to $3,798,000 for the three months ended December 31, 1998. The
components of revenues are sales, which consist of our sales of products and
royalties on the sale of these products by others, and contract revenues. Sales
decreased by 1% to $3,747,000 for the three months ended December 31, 1999, as
compared to $3,782,000 for the prior year. The decrease was due to a decrease in
ONCASPAR revenues. The decrease in ONCASPAR revenues was offset in part by an
increase in ADAGEN sales of approximately 12%, due to an increase in patients
receiving ADAGEN treatment. Net sales of ADAGEN were $3,296,000 for the three
months ended December 31, 1999 and $2,936,000 for the three months ended
December 31, 1998. We market ADAGEN internally and ONCASPAR through marketing
agreements in the U.S. and Canada with Rhone-Poulenc Rorer Pharmaceuticals Inc.
("RPR") and in Europe with MEDAC GmbH ("MEDAC"). ONCASPAR revenues are comprised
of manufacturing revenues, as well as royalties on sales of ONCASPAR by RPR.
ONCASPAR revenues for the quarter decreased due to declines in manufacturing and
royalty revenues which resulted from difficulties encountered in our
manufacturing process and the changes made to our labeling and distribution
procedures, as described below.
During 1998, we began to experience manufacturing problems with ONCASPAR. The
problems were due to an increase in the levels of particulates in batches of
ONCASPAR which resulted in an increased rejection rate for this product. As a
result of these manufacturing problems, we agreed with the FDA to temporary
labeling and distribution modifications for ONCASPAR. We took over distribution
of ONCASPAR directly to patients on an as-needed basis and instituted additional
inspection and labeling procedures prior to distribution. In addition, during
May 1999, the FDA required us to limit distribution of the product to only those
patients who are hypersensitive to native L-asparaginese. In November 1999 the
FDA lifted this restriction.
We have been able to manufacture several batches of ONCASPAR which contain
acceptable levels of particulates and anticipate a final resolution of the
problem during the fourth quarter of fiscal 2000. It is expected that RPR will
resume distribution of ONCASPAR at that time. There can be no assurance that
this solution will be acceptable to the FDA. If we are unable to resolve this
problem, the FDA may not permit us to continue to distribute this product. An
extended disruption in the marketing and distribution of ONCASPAR may have a
material adverse impact on future ONCASPAR sales.
We expect sales of ADAGEN to increase at rates comparable to those achieved
during the last two years as additional patients are treated. We also anticipate
ONCASPAR sales will remain at reduced levels until we resolve the manufacturing
problem and RPR resumes normal distribution of the product. We cannot assure
that any particular sales levels of ADAGEN or ONCASPAR will be achieved or
maintained.
We had export sales of $1,089,000 for the three months ended December 31, 1999
and $945,000 for the three months ended December 31, 1998. Of these amounts,
sales in Europe were $975,000 for the three months ended December 31, 1999 and
$863,000 for the three months ended December 31, 1998.
Cost of Sales. Cost of sales, as a percentage of sales, improved to 21% for the
three months ended December 31, 1999 as compared to 27% for the prior year. The
improvement was primarily due to a charge taken in the three months
8
ended December 31, 1998 related to the write-off of ONCASPAR finished goods on
hand and in the distribution pipeline. The increased write-off of ONCASPAR
finished goods was attributable to the manufacturing problems previously
discussed.
Research and Development. Research and development expenses increased by 5% to
$1,933,000 for the three months ended December 31, 1999 from $1,848,000 for the
same period last year. The increase was due to increased payroll and related
expenses as well as the acquisition of certain patent rights. Our research and
development expenses are focused on the clinical development of PEG-camptothecin
which is in Phase I clinical trials, as well as preclinical development of other
PEG compounds.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended December 31, 1999 increased by 33% to
$2,810,000, as compared to $2,108,000 in 1998. The increase was primarily due
to, increased legal fees related to litigation and ongoing arbitration
proceedings, as well as increased patent filing and defense costs. Our marketing
and distribution costs for ONCASPAR were also higher in comparison to the prior
year, due to the changes in distribution previously discussed. Currently, we are
responsible for the marketing and distribution of this product until RPR resumes
distribution of the product. During the prior year, a portion of these costs
were RPR's responsibility.
Six months ended December 31, 1999 vs. Six months ended December 31, 1998
Revenues. Revenues for the six months ended December 31, 1999 decreased by
$107,000 to $6,679,000 as compared to $6,786,000 for the same period last year.
The components of revenues are sales, which consist of sales of our products and
royalties on the sale of these products by others, and contract revenues. Sales
decreased by 2% to $6,617,000 for the six months ended December 31, 1999, as
compared to $6,718,000 for the prior year. The decrease was due to a decline in
ONCASPAR revenues. The decrease in ONCASPAR revenue was offset in part by an
increase in ADAGEN sales of approximately 11%, resulting from an increase in
patients receiving ADAGEN treatment. Net sales of ADAGEN, which we market, were
$6,042,000 for the six months ended December 31, 1999 and $5,428,000 for the six
months ended December 31, 1998. The decrease in ONCASPAR revenues was due to
declines in manufacturing and royalty revenues resulting from difficulties
encountered in our manufacturing process and the resulting changes in labeling
and distribution previously described. We had export sales of $2,007,000 for the
six months ended December 31, 1999 and $1,723,000 for the six months ended
December 31, 1998. Of these amounts, sales in Europe were $1,748,000 for the six
months ended December 31, 1999 and $1,487,000 for the six months ended December
31, 1998.
Cost of Sales. Cost of sales, as a percentage of sales, improved to 30% for the
six months ended December 31, 1999 as compared to 35% for the six months ended
December 31, 1998. The improvement was primarily due to a charge taken in 1998
related to the write-off of ONCASPAR finished goods on hand and in the
distribution pipeline. The prior year's write-off of ONCASPAR finished goods was
attributable to the manufacturing problems previously discussed.
Research and Development. Research and Development expenses increased by 5% to
$3,590,000 for the six months ended December 31, 1999 from $3,423,000 in the
same period last year. The increase was due to increased payroll and related
expenses as well as the acquisition of certain patent rights.
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended December 31, 1999 increased by 41% to
$5,136,000, as compared to $3,644,000 in the prior year. The increase was
primarily due to increased legal fees related to litigation and ongoing
arbitration proceedings, increased patent filing and defense costs, and
increased ONCASPAR marketing and distribution costs.
Liquidity and Capital Resources
Total cash reserves, including cash and cash equivalents as of December 31, 1999
were $23,262,000, as compared to $24,674,000 as of June 30, 1999. The decrease
in total cash reserves was due to the payment of approximately $1,542,000 in
cumulative accrued dividends on 80,000 shares of Series A Preferred Stock during
the quarter ended
9
December 31, 1999. The 80,000 shares of Series A Preferred Stock were converted
into 181,818 shares of common stock during the six months ended December 31,
1999. We invest our excess cash in a portfolio of high-grade marketable
securities and United States government-backed securities.
To date, our sources of cash have been the proceeds from the sale of our stock
through public offerings and private placements, sales of ADAGEN, sales of
ONCASPAR, sales of our products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances. Our
current sources of liquidity are cash, cash equivalents and interest earned on
such cash reserves, sales of ADAGEN, sales of ONCASPAR, sales of our products
for research purposes and license fees.
Under our amended license agreement with RPR, we received a payment of
$3,500,000 in advance royalties in January 1995. Royalties due under the amended
license agreement will be offset against an original credit of $5,970,000, which
represents the royalty advance plus reimbursement of certain amounts due RPR
under the original agreement and interest expense, before cash payments will be
made under the agreement. The royalty advance is shown as a long-term liability.
The corresponding current portion of the advance is included in accrued expenses
on the consolidated balance sheets. We will reduce the advance as royalties are
recognized under the agreement. Through December 31, 1999, an aggregate of
$4,369,000 in royalties payable by RPR has been offset against the original
credit.
As of December 31, 1999, we had 27,000 shares of Series A Preferred Stock
outstanding. These preferred shares are convertible into approximately 61,364
shares of common stock. Dividends accrue on the remaining outstanding shares of
Series A Preferred Stock at a rate of $54,000 per year. As of December 31, 1999,
there were accrued and unpaid dividends totaling $514,000 on the shares of
Series A Preferred Stock outstanding. We have the option to pay these dividends
in either cash or common stock.
We are currently in discussions with RPR related to a disagreement over the
purchase price we charged RPR for ONCASPAR under our supply agreement with RPR.
RPR has asserted that we have overcharged them under the supply agreement in the
amount of $2,329,000. We believe our costing and pricing of ONCASPAR complies
with the supply agreement. RPR has also asserted that we should be responsible
for its lost profits while ONCASPAR is under the temporary labeling and
distribution modifications. RPR contends that its lost profits through December
31, 1999 were $5,194,000. We do not agree with RPR's claims. We do not believe
the ultimate resolution of either matter will have a materially adverse effect
on our financial results or operations, though it could have a material adverse
effect on our financial position.
We are being sued, in the United States District Court for the District of New
Jersey, by LBC Captial Resources Inc., a former financial advisor. LBC is
asserting that under the May 2, 1995 letter agreement between us and LBC, LBC
was entitled to a commission in connection with our January and March 1996
private placements, comprised of $500,000 and warrants to purchase 1,000,000
shares of our common stock at an exercise price of $2.50 per share. LBC has
claimed $3,000,000 in compensatory damages, plus punitive damages, counsel fees
and costs for the alleged breach of the letter agreement. We have entered into
an agreement with LBC (known as the Stipulation of Damages) which provides that
if we are found liable to LBC in this suit, the damages for these claims would
be limited to $2,750,000 in cash. LBC has also asserted that it is entitled to
an additional fee of $175,000 and warrants to purchase 250,000 shares of our
common stock to the extent the warrants issued to investors in the private
placements are exercised. We believe that no compensation is due to LBC under
the letter agreement and deny any liability under the letter agreement. We
intend to defend this lawsuit vigorously and believe the ultimate resolution of
this matter will not have a material adverse effect on our financial position.
However, if we were required to issue warrants to LBC we would be required to
incur a non-cash expense for the cash warrants issued equal to the difference
between the exercise price of the warrants ($2.50) and the then current market
price of our common stock.
We believe that our existing cash resources should be sufficient to fund our
capital and operational requirements (at current levels) for the foreseeable
future. Upon exhaustion of our current cash reserves, our continued operations
will depend on our ability to realize significant revenues from the commercial
sale of our products, raise additional funds through equity or debt financing,
or obtain significant licensing, technology transfer or contract research and
development fees. We cannot make any assurance that these sales, financings or
revenue generating activities will be successful.
10
Year 2000
In 1999 we completed a review of our business systems, including computer
systems and manufacturing equipment, and queried our customers and vendors as to
their progress in identifying and addressing problems that their systems may
face in correctly interrelating and processing date information in the year
2000. To date, we have not experienced any significant problems related to the
year 2000 problem, either in our systems or the systems of our vendors or
customers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on December 7, 1999.
(b) The directors elected at the annual meeting were Peter G. Tombros and
Dr. Rosina B. Dixon. The term of office as a director for each of Dr. David W.
Golde, Robert LeBuhn, A.M. "Don" MacKinnon, Rolf A. Classon, David S. Barlow,
and Randy H. Thurman continued after the annual meeting.
(c) The matters voted upon at the annual meeting and the results of the
voting, including broker non-votes where applicable, are set forth below.
(i) The stockholders voted 26,656,921 shares in favor and 290,486 shares
withheld with respect to the election of Peter G. Tombros as a Class I director
of the Company and 26,654,298 shares in favor and 292,479 shares withheld with
respect to the election of Dr. Rosina Dixon as a Class I director of the
Company. Broker non-votes were not applicable.
(ii) The stockholders voted 25,215,931 shares in favor, 959,525 shares
against 611,230 abstained and 160,721 not voted with respect to a proposal to
approve amendments to the Company's Non-Qualified Stock Option Plan, as amended.
Broker non-votes were not applicable.
(iii) The stockholders voted 26,648,657 shares in favor and 281,417 against
with respect to a proposal to ratify the selection of KPMG LLP to audit the
Company's consolidated financial statements for the fiscal year ending June 30,
2000. Broker non-votes were not applicable.
Item 5. Other Information
In January 2000, Hoffman-La Roche filed lawsuits in both the U.S. and
France against Schering-Plough alleging that PEG-Intron infringes certain
patents held by Hoffmann-La Roche. The validity and scope of Hoffmann-La Roche's
patents in this segment of the industry could be judicially determined during
these proceedings. This litigation is at a very early stage and we are not in a
position to predict its outcome. If Schering-Plough does not prevail in this
litigation, Hoffmann-La Roche may completely block Schering-Plough from
commercializing PEG-Intron and we will not receive any royalties on the sales of
PEG-Intron. This would have a material adverse effect on our business, financial
condition and results of operations.
We announced on February 10, 2000 that Schering-Plough Corporations'
Biologics License Application (BLA) for PEG-Intron(TM) has been accepted for
standard review by the FDA. PEG-Intron is a modified form of Schering-Plough's
INTRON(R) A (interferon alfa-2b) that uses proprietary PEG technology developed
by Enzon. Schering-Plough submitted its BLA to the FDA on December 23, 1999
seeking marketing clearance for PEG-Intron (peginterferon alfa-2b) for the
treatment of chronic hepatitis C in patients 18 years of age or older with
compensated liver disease.
Under the Prescription Drug Users Fee Act, the FDA should act on
Schering-Plough's BLA within 12 months from the date of receipt. While
Schering-Plough had requested priority review status for the drug, which would
have taken six months, the FDA granted a standard review.
12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Page Number
or
Exhibit Incorporation
Number Description By Reference
- ------ ----------- ------------
3(i) Certificate of Incorporation, as amended ~~
3(ii) By-laws, as amended *(4.2)
3(iv) Amendment to Certificate of Incorporation dated January 5,
1998 ##3(iv)
10.1 Form of Change of Control Agreements dated as of January
20, 1995 entered into with the Company's Executive
Officers ###(10.2)
10.2 Lease - 300-C Corporate Court, South Plainfield, New
Jersey ***(10.3)
10.4 Lease Termination Agreement dated March 31, 1995 for 20
Kingsbridge Road and 40 Kingsbridge Road, Piscataway, New
Jersey ###(10.6)
10.5 Option Agreement dated April 1, 1995 regarding 20
Kingsbridge Road, Piscataway, New Jersey ###(10.7)
10.6 Form of Lease - 40 Cragwood Road, South Plainfield, New
Jersey ****(10.9)
10.7 Lease 300A-B Corporate Court, South Plainfield, New Jersey ++(10.10)
10.8 Stock Purchase Agreement dated March 5, 1987 between the
Company and Eastman Kodak Company ****(10.7)
10.9 Amendment dated June 19, 1989 to Stock Purchase Agreement
between the Company and Eastman Kodak Company **(10.10)
10.10 Form of Stock Purchase Agreement between the Company and
the purchasers of the Series A Cumulative Convertible
Preferred Stock +(10.11)
10.11 Amendment to License Agreement and Revised License
Agreement Between the Company and RCT dated April 25, 1985 +++(10.5)
10.12 Amendment dated as of May 3, 1989 to Revised License
Agreement Dated April 25, 1985 between the Company and
Research Corporation **(10.14)
10.13 License Agreement dated September 7, 1989 between the
Company and Research Corporation Technologies, Inc.
**(10.15)
10.14 Master Lease Agreement and Purchase Leaseback Agreement
dated October 28, 1994 between the Company and Comdisco,
Inc. #(10.16)
10.15 Employment Agreement with Peter G. Tombros dated as of
April 5, 1997 ^^(10.15)
10.16 Stock Purchase Agreement dated as of June 30, 1995 ~(10.16)
10.17 Securities Purchase Agreement dated as of January 31, 1996 ~(10.17)
10.18 Registration Rights Agreements dated as of January 31,
1996 ~(10.18)
10.19 Warrants dated as of February 7, 1996 and issued pursuant
to the Securities Purchase Agreement dated as of January
31, 1996 ~(10.19)
10.20 Securities Purchase Agreement dated as of March 15, 1996 ~~(10.20)
10.21 Registration Rights Agreement dated as of March 15, 1996 ~~(10.21)
10.22 Warrant dated as of March 15, 1996 and issued pursuant to
the Securities Purchase Agreement dated as of March 15,
1996 ~~(10.22)
10.23 Amendment dated March 25, 1994 to License Agreement dated
September 7, 1989 between the Company and Research
Corporation Technologies, Inc. ~~~(10.23)
10.24 Independent Directors' Stock Plan ~~~(10.24)
10.25 Stock Exchange Agreement dated February 28, 1997, by and
between the Company and GFL Performance Fund Ltd. ^(10.25)
13
10.26 Agreement Regarding Registration Rights Under Registration
Rights Agreement dated March 10, 1997, by and between the
Company and Clearwater Fund IV LLC ^(10.26)
10.27 Common Stock Purchase Agreement dated June 25, 1998 ^^^(10.27)
10.28 Placement Agent Agreement dated June 25, 1998 with SBC
Warburg Dillon Read, Inc. ^^^^(10.28)
27.0 Financial Data Schedule o
- ----------
o Filed herewith.
* 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, 1993 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 Quarterly Report on Form
10-Q for the quarter ended December 31, 1994 and incorporated herein by
reference thereto.
## Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 and incorporated herein by
reference thereto.
### Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 and incorporated herein by
reference thereto.
~ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1995 and incorporated herein by
reference thereto.
~~ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 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, 1996 and incorporated herein by
reference thereto.
^ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference thereto.
14
^^ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997 and incorporated herein by reference
thereto.
^^^ Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (File No. 333-58269) 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 year ended June 30, 1998 and incorporated herein by reference
thereto.
(b) Reports on Form 8-K.
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENZON, INC.
(Registrant)
Date: February 25, 2000 By: /s/ Peter G. Tombros
----------------------------
Peter G. Tombros
President and Chief Executive
Officer
By: /s/ Kenneth J. Zuerblis
----------------------------
Kenneth J. Zuerblis
Vice President, Finance and Chief Financial
Officer
(Principal Financial
and Accounting Officer)
16