<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Enzon,
Inc. and Subsidiaries Consolidated Balance Sheet as of June 30, 1998 and the
Consolidated Statement of Operations for the year ended June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,478,459
<SECURITIES> 0
<RECEIVABLES> 2,300,046
<ALLOWANCES> 0
<INVENTORY> 1,022,530
<CURRENT-ASSETS> 10,248,987
<PP&E> 15,134,075
<DEPRECIATION> 13,368,330
<TOTAL-ASSETS> 13,741,378
<CURRENT-LIABILITIES> 6,087,678
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 1,070
<COMMON> 313,414
<OTHER-SE> 6,612,056
<TOTAL-LIABILITY-AND-EQUITY> 13,741,378
<SALES> 12,312,730
<TOTAL-REVENUES> 14,644,032
<CGS> 3,645,281
<TOTAL-COSTS> 18,725,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,923
<INCOME-PRETAX> (3,617,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,617,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,617,133)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>6
<DESCRIPTION>ADDITIONAL EXHIBITS
<TEXT>
EXHIBIT 99.0
Certain Factors to Consider in Connection
with Forward Looking Statements
Accumulated Deficit and Uncertainty of Future Profitability. The Company was
originally incorporated in 1981. To date, the Company's sources of cash have
been the proceeds from the sale of its stock through public offerings and
private placements, sales of its FDA approved products, ADAGEN(R) and
ONCASPAR(R); sales of its products for research purposes; contract research and
development fees; technology transfer and license fees; and royalty advances. At
June 30, 1998, the Company had an accumulated deficit of approximately
$116,842,000. The Company expects to incur operating losses for the foreseeable
future. To date, ADAGEN and ONCASPAR are the only products of the Company which
have been approved for marketing in the United States by the FDA, having been
approved in March 1990 and February 1994, respectively. In addition, ONCASPAR
has been approved for marketing in Canada, Germany and Russia. In order to
achieve profitable operations on a continuing basis, the Company, either alone
or through its partners, must successfully manufacture, market and sell its
ADAGEN and ONCASPAR products and develop, manufacture and market the Company's
products which are under development. These products are in various stages of
development, and the period necessary to achieve regulatory approval and market
acceptance of any individual product is uncertain and typically lengthy, if
achievable at all. Potential investors should be aware of the difficulties a
biopharmaceutical enterprise such as the Company encounters, especially in view
of the intense competition in the pharmaceutical industry in which the Company
competes. There can be no assurance that the Company's plans will either
materialize or prove successful, that its products under development will be
successfully developed or that its products will generate revenues sufficient to
enable the Company to achieve profitability.
Raw Materials and Dependence Upon Suppliers. Except for PEG-hemoglobin, the
Company purchases the unmodified compounds utilized in its approved products and
products under development from outside suppliers. There can be no assurance
that the purified bovine hemoglobin used in the manufacture of PEG-hemoglobin
can be produced by the Company in the amounts necessary to expand the current
clinical trials. The Company may be required to enter into supply contracts with
outside suppliers for certain unmodified compounds. The Company does not produce
the unmodified adenosine deaminase used in the manufacture of ADAGEN, the
unmodified forms of L-asparaginase used in the manufacture of ONCASPAR and the
unmodified camptothecin used in the Company's PROTHECAN(TM) product which is
under development and has a supply contract with an outside supplier for the
supply of each of these unmodified compounds. Delays in obtaining or an
inability to obtain any unmodified compound, including unmodified adenosine
deaminase, unmodified L-asparaginase, unmodified bovine blood, or unmodified
camptothecin on reasonable terms, or at all, could have a material adverse
effect on the Company's business, financial condition and results of operations.
In the event the Company is required to obtain an alternate source for an
unmodified compound utilized in a product which is being sold commercially or
which is in clinical development, the FDA and relevant foreign regulatory
agencies will likely require the Company to perform additional testing, which
would cause delays and additional expenses, to demonstrate that the alternate
material is biologically and chemically equivalent to the unmodified compound
previously used. Such evaluations could include chemical, pre-clinical and
clinical studies and could delay development of a product which is in clinical
trials, limit commercial sales of an approved product and cause the Company to
incur significant additional expenses. If such alternate material is not
demonstrated to be chemically and biologically equivalent to the previously used
unmodified compound, the Company will likely be required to repeat some or all
of the pre-clinical and clinical trials conducted for such compound. 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 compound, the FDA or relevant
foreign regulatory agency may require the Company to conduct additional clinical
trials with such alternate material.
Recently the Company's quality assurance department has observed increased
levels of particulates in certain batches on ONCASPAR which it manufactures.
These batches were not shipped and the Company's recent rejection rate for the
manufacture of this product is significantly higher than it has been
historically. The Company is engaged in an extensive review of its manufacturing
procedures for this product and believes that the problem
may be related to certain materials which are used in the filling process,
although this has not yet been determined. The Company has been in discussions
with the FDA regarding this problem and expects to have further discussions
shortly with the FDA. It is possible that the FDA may not allow the Company to
ship ONCASPAR until this problem is resolved. However, it is also possible that
the FDA may permit the Company to ship units of ONCASPAR which the Company
determines are free from particulates, including units currently on hand. This
problem may result in a temporary or extended disruption in the distribution of
ONCASPAR. An extended disruption could have a material adverse impact on future
ONCASPAR sales.
Patents and Proprietary Technology. 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 certain protection from competition, 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 scope of patent claims for biotechnological inventions is
uncertain and the Company's patents and patent applications are subject to this
uncertainty. The Company is aware of certain issued patents and patent
applications belonging to third parties, and there may be other patents and
patent 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 patents and patent applications will be available on
acceptable terms or at all. If the Company does not obtain such licenses, it or
its partners could encounter delays in product market introductions while it
attempts to design around such patents or could find that the development,
manufacture or sale of products requiring such licenses could be foreclosed. If
the Company does obtain such licenses it will in all likelihood be required to
make royalty and other payments to the licensers, thus reducing the profits
realized by the Company from the products covered by such licenses. In certain
cases, the Company has obtained opinions of patent counsel that certain of such
patents, including patents relevant to PEG- hemoglobin held by Biopure Inc. and
patents relevant to PEG-Intron A held by Hoffman La Roche, are not infringed by
the products of the Company or its collaborators or would not be held to be
valid if litigated. Such opinions have been relied upon by the Company and its
collaborators in continuing to pursue development of the subject product. Such
opinions are not binding on any court and there can be no assurance that such
opinions will prove to be correct and that a court would find any of the claims
of such patents to be invalid or that the Company or its collaborators does not
infringe such patents. The Company is aware that certain organizations are
engaging in activities that infringe certain of the Company's PEG technology and
SCA patents. There can be no assurance that the Company will be able to enforce
its patent and other rights against such organizations. 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. The
Company has two research and license agreements with The Green Cross Corporation
("Green Cross") regarding rHSA. The Company and Yoshitomi Pharmaceutical
Industries, Ltd. ("Yoshitomi"), the successor to Green Cross' business, are
currently in arbitration to resolve the amount of royalties that will be due the
Company, if any. Yoshitomi has filed documents in such arbitration seeking a
declaratory judgment that under its agreement with the Company no royalties are
payable. Any adverse decision from such an arbitration proceeding could result
in a material adverse effect to the Company's future business, financial
condition and results of operations. Research Corporation Technologies, Inc.
("Research Corporation") held the original patent upon which the PEG Process is
based and had granted the Company a license under such patent. Research
Corporation's patent for the PEG Process in the United States and its
corresponding foreign patents have expired. Although the Company has obtained
several improvement patents in connection with the PEG Process, there can be no
assurance that any of these patents will enable the Company to prevent
infringement or that competitors will not develop competitive products outside
the protection that may be afforded by these patents. 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 and other compounds. Based upon the expiration of the Research
Corporation patent, other parties will be permitted to make, use, or sell
products covered by the claims of the Research Corporation
patent, subject to other patents, including those held by the Company. There can
be no assurance that the expiration of the Research Corporation patent will not
have a material adverse effect on the business, financial condition and results
of operations of the Company.
Limited Sales and Marketing Experience; Dependence on Marketing Partners. 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 significant sales and marketing
experience. 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 exclusive
marketing rights in North America and the Pacific Rim to RPR. The Company has
also granted exclusive marketing rights in Europe and Russia to Medac Gmbh and
in Israel to Tzamal Pharma Ltd.. The Company expects to retain marketing
partners to market ONCASPAR in other foreign markets, principally South America,
and is currently pursuing arrangements in this regard. There can be no assurance
that such efforts will result in the Company concluding 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 licensees or
marketing partners may have all or a significant portion of the development and
regulatory approval responsibilities. There can be no assurance that the Company
will be able to control the amount and timing of resources that any licensee or
marketing partner may devote to the Company's products or prevent any licensee
or marketing partner from pursuing alternative technologies or products that
could result in the development of products that compete with the Company's
products and the withdrawal of support for the Company's products. Should the
licensee or marketing partner fail to develop a marketable product (to the
extent it is responsible for product development) or fail to market a product
successfully, if it is developed, the Company's business, financial condition
and results of operations may be adversely affected. There can be no assurance
that the Company's marketing strategy will be successful. Under the Company's
marketing and license agreements, the Company's marketing partners and licensees
may have the right to terminate the agreements and abandon the applicable
products at any time for any reason without significant payments. The Company is
aware that certain of its marketing partners are pursuing parallel development
of products on their own and with other collaborative partners which may compete
with the licensed products and there can be no assurance that the Company's
other current or future marketing partners will not also pursue such parallel
courses.
Reimbursement from Third-Party Payors. Sales of the Company's products will be
dependent in part on the availability of reimbursement from third-party payors,
such as governmental health administration authorities, private health insurers
and other organizations. Government and other third-party payors are
increasingly sensitive to the containment of health care costs and are limiting
both coverage and levels of reimbursement for new therapeutic products approved
for marketing, and are refusing, in some cases, to provide any coverage for
indications for which the FDA and other national health regulatory authorities
have not granted marketing approval. There can be no assurance that such
third-party payor reimbursement will be available or will permit the Company to
sell its products at price levels sufficient for it to realize an appropriate
return on its investment in product development. Since patients who receive
ADAGEN will be required to do so for their entire lives (unless a cure or
another treatment is developed), lifetime limits on benefits which are included
in most private health insurance policies could permit insurers to cease
reimbursement for ADAGEN. Lack of or inadequate reimbursement by government and
other third party payors for the Company's products would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Government Regulation. The manufacturing and marketing of pharmaceutical
products in the United States and abroad is subject to stringent governmental
regulation and the sale of any of the Company's products for use in humans in
the United States will require the prior approval of the FDA. 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.
Pharmaceutical manufacturing facilities are also regulated by state, local and
other authorities. Obtaining FDA approval for a new therapeutic may take several
years and involve substantial expenditures. ADAGEN was approved by the FDA in
March 1990. ONCASPAR was approved by the FDA in February 1994, in Germany in
November 1994 and in Canada in 1997 in
each case for patients with acute lymphoblastic leukemia who are hypersensitive
to native forms of L-asparaginase. ONCASPAR was approved in Russia for
therapeutic use in a broad range of cancers. Except for these approvals, none of
the Company's other products have been approved for sale and use in humans in
the United States or elsewhere. There can be no assurance that the Company will
be able to obtain FDA approval for any of its other products. In addition, any
approved products are subject to continuing regulation, and noncompliance by the
Company with applicable requirements can result in criminal penalties, civil
penalties, fines, recall or seizure, injunctions requiring suspension of
production, orders requiring ongoing supervision by the FDA or refusal by the
government to approve marketing or export applications or to allow the Company
to enter into supply contracts. Failure to obtain or maintain requisite
governmental approvals or failure to obtain or maintain approvals of the scope
requested, will delay or preclude the Company or its licensees or marketing
partners from marketing their products, or limit the commercial use of the
products, and thereby may have a material adverse affect on the Company's
business, financial condition and results of operations.
Intense Competition and Risk of Technological Obsolescence. Many established
biotechnology and pharmaceutical companies with resources greater than those of
the Company are engaged in activities that are competitive with the Company's
and may develop products or technologies which compete with those of the
Company. The Company is aware that other companies are engaged in utilizing PEG
technology in developing drug products. There can be no assurance that the
Company's competitors will not successfully develop, manufacture and market
competing products utilizing PEG technology or otherwise. 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.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that such competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Rapid technological development by others may result in
the Company's products becoming obsolete before the Company recovers a
significant portion of the research, development and commercialization expenses
incurred with respect to those products. The Company's success, in large part,
depends upon developing and maintaining a competitive position in the
development of products and technologies in its area of focus. There can be no
assurance that the Company's competitors will not succeed in developing
technologies or products that are more effective than any which are being sold
or developed by the Company or which would render the Company's technologies or
products obsolete or noncompetitive. The Company's failure to develop and
maintain a competitive position with respect to its products and/or technologies
would have a material adverse effect on its business, financial condition and
results of operations.
Uncertainty of Market Acceptance. The Company's products, ONCASPAR and ADAGEN,
have been approved by the FDA to treat patients with acute lymphoblastic
leukemia and a rare form of severe combined immunodeficiency disease,
respectively. Neither product has become widely used due to the small patient
population and limited indications approved by the FDA. The Company's current
research and development efforts are directed towards developing new
technologies to aid in drug delivery. Assuming that the Company is able to
develop such technologies and secure the requisite FDA approvals, the market
acceptance of any such products will depend upon the acceptance by the medical
community of the use of such technologies. There can be no assurance that any
additional products will be approved by the FDA or that, if approved, the
medical community will use them. In addition, the use of any such new products
will depend upon the extent of third party medical reimbursement, increased
awareness of the effectiveness of such technologies and sales efforts by the
Company or any marketing partner. The Company's proprietary PEG technology has
received only limited market acceptance to date. Failure of the Company to
develop new FDA approved products and to achieve market acceptance for such
products would have a material adverse effect on the Company's business,
financial condition and results of operation.
Potential Product Liability. The use of the Company's products during testing or
after regulatory approval entails an inherent risk of adverse effects which
could expose the Company to product liability claims. The Company maintains
product liability insurance coverage in the total amount of $10 million for
claims arising from the use of its products in clinical trials prior to FDA
approval and for claims arising from the use of its products after FDA approval.
There can be no assurance that the Company will be able to maintain its existing
insurance coverage or obtain coverage for the use of its other products in the
future. There can be no assurance that such insurance coverage and the resources
of the Company would be sufficient to satisfy any liability resulting from
product
liability claims or that a product liability claim would not have a material
adverse effect on the Company's business, financial condition or results of
operations.
Future Capital Needs; Uncertainty of Additional Financing. The Company's current
sources of liquidity are its cash reserves, and interest earned on such cash
reserves, sales of ADAGEN and ONCASPAR, sales of its products for research
purposes, and license fees. There can be no assurance as to the level of sales
of the Company's FDA approved products, ADAGEN and ONCASPAR, or the amount of
royalties realized from the commercial sale of ONCASPAR pursuant to the
Company's licensing agreements. Total cash reserves, including short term
investments, as of June 30, 1998, were approximately $6,478,000, and after
giving effect to the approximately $17,600,000 of net proceeds received by the
Company from the private placement completed in July 1998, will be approximately
$24,078,000. Based upon its currently planned research and development
activities and related costs and its current sources of liquidity, the Company
anticipates its current cash reserves will be sufficient to meet its capital and
operational requirements for the foreseeable future. The Company's future needs
and the adequacy of available funds will depend on numerous factors, including
without limitation, the successful commercialization of its products, progress
in its product development efforts, the magnitude and scope of such efforts,
progress with preclinical studies and clinical trials, progress with regulatory
affairs activities, the cost of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, competing technological
and market developments, and the development of strategic alliances for the
marketing of its products. There can be no assurance that the Company will not
require additional financing for its currently planned capital and operational
requirements. In addition, the Company may seek to acquire additional
technology, enter into strategic alliances and engage in additional research and
development programs, which may require additional financing. The Company does
not have any committed sources of additional financing, and there can be no
assurance that additional funding, if necessary, will be available on acceptable
terms, if at all. To the extent the Company is unable to obtain financing, it
may be required to curtail its activities or sell additional securities. There
can be no assurance that any of the foregoing fund raising activities will
successfully meet the Company's anticipated cash needs. If adequate funds are
not available, the Company's business, financial condition and results of
operations will be materially and adversely affected.
Dividend Policy and Restrictions. 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 the
dividends payable on the Company's Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock"), any earnings which the Company may
realize will be retained to finance the growth of the Company. In addition, the
terms of the Series A Preferred Stock restrict the payment of dividends on other
classes and series of stock.
Possible Volatility of Stock Price. Historically, the market price of the
Company's Common Stock has fluctuated over a wide range and it is likely that
the price of the Common Stock will fluctuate in the future. Announcements
regarding technical innovations, the development of new products, the status of
corporate collaborations and supply arrangements, regulatory approvals, patent
or proprietary rights or other developments by the Company or its competitors
could have a significant impact on the market price of the Common Stock. In
addition, due to one or more of the foregoing factors, in one or more future
quarters, the Company's results of operations may fall below the expectations of
securities analysts and investors. In that event, the market price of the
Company's Common Stock could be materially and adversely affected.
Anti-takeover Considerations. The Company has the authority to issue up to
3,000,000 shares of Preferred Stock of the Company in one or more series and to
fix the powers, designations, preferences and relative rights thereof without
any further vote of shareholders. The issuance of such Preferred Stock could
dilute the voting powers of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. Certain
provisions of the Company's Articles of Incorporation and By-laws, including
those providing for a staggered Board of Directors, as well as Delaware law, may
operate in a manner that could discourage or render more difficult a takeover of
the Company or the removal of management or may limit the price certain
investors may be willing to pay for shares of Common Stock.