Following Up on Enzon (ENZN)

Enzon published their annual 10-K filing after the close on Friday. Royalty revenue has been drying up much faster than management anticipated in their 2015 filing. They expected $9m in revenue for 2016, and received closer to $8m. They had forecast $29m in revenue at the start of 2016 (or $20m from 2017 thru 2021), and as of 2017 they now expect to receive $10m, implying that they reduced their 2017-2021 forecast by half from $20m to $10m in revenue. Additionally, Merck notified ENZN that they had overpaid and will be reducing future payments to account.

The Nektar court case is still moving along, so there is still upside revenue potential there. Additionally, Shire is in Phase III with its calaspargase pegol development (referred to as SC Oncaspar by Enzon). So the upside potential still exists for one-time milestone payments of roughly $15 million triggered by European and U.S. FDA approvals.

My guess is the stock will trade down closer to $.20-0.25 in the near-term. I closed out of my position at -20%. Thankfully was never very big to begin with and the accelerating decline in royalties seems much faster than anticipated. The company still likely has $15-25 million in royalties, but expenses remain high, and as less than a 1% position, it’s not worth the hassle.

From a learning standpoint it was helpful to learn more about liquidating trusts and the associated taxation of distributions.



Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

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