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Executives

Craig Tooman – EVP of Finance, CFO

Alex Denner – Chairman

Ivan Horak – President, R&D and Chief Scientific Officer

Ralph Del Campo – COO

Richard Mulligan – Director

Analysts

Jim Tumbering – BMO Capital Markets

Caroline Corner – William Smith & Co.

Jeffrey Cohen – C.K. Cooper & Company

Ted Wachtell – Millennium Partners

Richard Mansouri – DellaCamera Capital

Brad Gold [ph] – Capital AU Consultants [ph]

Enzon Pharmaceuticals, Inc. (ENZN) Q1 2010 Earnings Call Transcript May 10, 2010 5:00 PM ET

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Enzon's first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to turn the program over to our speaker, Craig Tooman, Executive Vice President and Chief Financial Officer of Enzon Pharmaceuticals. Sir, please go ahead.

Craig Tooman

Good morning and thank you for joining us today. Very pleased to be joined on the call today by my colleagues Ralph Del Campo, our Chief Operating Officer and Dr. Ivan Horak, our President of Research and Development. We’re also pleased to have two members of our executive committee participating in our call today, our Chairman, Dr. Alex Denner and Professor, Richard Mulligan.

Let me start by reminding you that during today’s conference call, we will be making forward-looking statements that represent the company's intentions, expectations, or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's press release and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. Furthermore, information discussed on today's call is accurate as of today, and we do not intend to update it.

Now I am very pleased to turn over the call to our Chairman of the Board, Dr. Alex Denner. Alex?

Alex Denner

Thanks, Craig. Good afternoon everyone and thank you for joining the call today. The first quarter marked the close of a landmark transaction for Enzon, the sale of its specialty pharmaceutical business for $300 million in cash and up to $27 million in milestone payments in a potential royalty stream.

This sale has transformed the company, both financially and operationally, into a biopharmaceutical company dedicated to the development of our oncology medicines, PEG-SN38 and the LNA products. The company also continues to enjoy a meaningful royalty stream from currently marketed products utilizing Enzon's PEG technology, including PEGINTRON, Macugen and Cimzia.

These assets along with significant cash on the balance sheet provide Enzon with a number of options for returning value to its shareholders. To that end, the Board and management are actively working to determine a strategy which provides a greatest potential for shareholder return using these various financial and strategic assets. We also continue to buy back stock as one component of the strategy to return value to shareholders. To be clear, we are fully committed to maximizing value for all Enzon’s shareholders.

In a moment, Dr. Ivan Horak will provide you with an update on the promising product candidates that now define Enzon, but first let me turn the call back over to Craig to discuss the company's first quarter financial performance.

Craig Tooman

Thank you, and as Alex stated the completion of the sale of the specialty pharmaceutical business in the first quarter transformed Enzon from a specialty pharma company to a company that is exclusively focused on advancing its novel pipeline. This change had a significant impact on the first quarter earnings and will change the dynamics of future earnings.

I'd like to start by pointing out some large unusual items that you will notice in the earnings statement this quarter. First in revenues, you will notice that we have three new line items, sale of in-process R&D, contract research and development, and miscellaneous revenue.

The first item, in-process R&D, is related to the sale of the specialty business. As part of the price for the specific business, $40.9 million was consideration for the ongoing next-generation Oncaspar and Adagen programs. As these programs are ongoing and unapproved they are classified as in-process R&D. They're also considered part of the continuing business since we continue to assist in the development of the programs to a services agreement and we are in the business of discovering and developing medicines.

The next two revenue lines are related to the transition services Enzon is performing for sigma-tau, the purchaser of the specialty pharmaceutical business for continuing R&D related to the next-generation Oncaspar and Adagen programs and various G&A activities. The agreement provides for Enzon to receive a markup on those expenses that incurs as a result of the services provided to sigma-tau. The revenue reported is a gross up of expenses at the agreed-upon rate.

Now let me turn to our R&D investments made this quarter. As you can see from the release, Enzon incurred $11.5 million for research and development activities associated with our remaining pipeline programs. These programs include our PEGylation technology, PEG-SN38, HIF-1 alpha, survivin and the additional six RNA antagonists licensed from Santaris.

The amount incurred on our PEG-SN38 program for the first quarter of 2010 was $4.2 million as compared to $3.8 million in the three months ended March 31, 2009. During the first quarter of 2010, we initiated enrollment in a Phase II study evaluating PEG-SN38 in metastatic breast cancer and a Phase I study for pediatric cancer. We also continued to enroll patients in our Phase II study for colorectal cancer.

The costs associated with the preclinical and clinical activities for the RNA antagonists using the LNA technology was $6.4 million in the first quarter of 2010, which included a $1 million milestone payment for the beta-catenin antagonists. In three months ended March 31, 2009, we incurred $6.2 million for the RNA antagonists programs.

We are currently conducting Phase I clinical trials for the HIF-1 alpha and survivin antagonists, as well as preclinical studies for the additional six RNA antagonists directed oncology targets, which are known to play an important role in cancer cell growth.

Finally, we are also working on identifying additional compounds that may benefit from Enzon's proprietary Customized Linker Technology, which is associated with the PEGylation platform. This effort resulted in investment of $900,000 for the first quarter of 2010. Ivan will give you an update on these programs in just a minute.

Another new line item on our P&L is for research and development related to the specialty and contracted services we are providing to sigma-tau. These costs include expenses incurred for services we continue to provide to sigma-tau for Adagen and Oncaspar programs. This quarter you will note that the expenses are larger than the revenues we are receiving. This difference is associated with work Enzon performed in 2010 prior to the completion of the sale of the specialty business at the end of January. Going forward, the difference between the revenues and expenses will be the markup for the work we will continue to perform on a contractual basis.

G&A expenses this quarter were $9.8 million; however, included in the 2010 first quarter G&A is the expense associated with the acceleration of stock compensation awards as a result of the sale of the specialty pharmaceutical business for many of the employees and the resignation of the former CEO. The total cost recognized in the first quarter G&A line for the acceleration of the stock awards was $2.4 million. We continue to identify and resize the company to be in line with the residue biopharmaceutical business. We anticipate further improvements in G&A expenses throughout 2010.

You will also notice that we have an additional $1.4 million in expenses associated with G&A for contracted services. These costs were incurred as part of the ongoing services we are performing for the purchaser of the specialty business. These costs are billed to sigma-tau at a cost plus markup rate and included in revenue as discussed earlier.

As part of our efforts to make the residual company more efficient and in line with our ongoing business functions we recognized $9.9 million of restructuring charges for severance of the affected employees. The employees impacted were those that were part of specialty pharmaceutical business and those functions that were deemed redundant in a residual company.

Also included in the restructuring charges is a reserve for severance and benefits that may be paid to our former CEO. In the first quarter of 2009, we recognized approximately $700,000 for severance associated with the headcount reduction across several functions in a continued effort to improve efficiencies.

Now let's turn to other income or expense which is comprised of investment income, interest expense and other non-operating expenses. Company reported net other expenses of approximately $1.7 million for the three months ended March 31, 2010 as compared to net other income of $2.5 million in the same period in 2009. As part of the debt conversion, which occurred during the first quarter of 2010, we wrote off a portion of the debt costs which were amortizing over the life of the notes. The write off of approximately $1.5 million is included in the interest expense line. Also included in this line item is the ongoing accrual for interest due on the remaining $134.5 million, 4% notes outstanding.

In the first quarter of 2009, we reduced our outstanding debt balance by $20.4 million at a significant discount to par. As a reminder, this repurchase resulted in a net gain of $4.5 million which you will see in the P&L.

To recap the financial results from continuing operations, total income for the first quarter was $20.8 million or $0.29 per diluted share as compared to a loss of $11.4 million or $0.25 per diluted share for the first quarter of 2009. When adjusted for unusual items this quarter, such as the sales in-process R&D and restructuring, the continuing operations reported loss of $10.3 million or $0.20 per diluted share.

Adjusted items in 2009 include a gain on the repurchase of debt of $4.5 million and restructuring; therefore the first quarter of 2009 adjusted results were a loss of $15.2 million or $0.34 per diluted share.

Now let me turn to the results from our discontinued operations. Since the specialty business was sold in the first quarter of 2010, the segments related to this business were we classified to discontinued operations. This includes results from the specialty business in January prior to the transaction being completed as well as a gain on the sale of the assets.

The total income and gain from discontinued operations for the first quarter 2010 was $179.1 million as compared to $17.6 million in the same period for 2009. For the month of January 2010, the specialty business reported income of $3.7 million. Included in the results was the acceleration of the stock compensation for those employees associated with the business sold.

Also included in the discontinued operations line item is a gain on the sale of the specialty business. The gain of $175.4 million is derived from the sales price of $300 million less the $40.9 million included in continuing operations, book value of intangible and fixed assets, related assets and liabilities and transaction costs associated with the specialty business.

Now turning to our cash position, which includes cash, short-term investments and marketable securities. At the end of March 2010, we had $497.5 million as compared to $199.7 million at the end of last year. During the first quarter of 2010, we received $300 million from the sale of the specialty pharmaceutical business. Also during the first quarter of 2010, we repurchased $5.8 million or approximately 561,000 shares of our outstanding common stock.

Since inception of our stock repurchase plan, we have purchased over 1.3 million shares for approximately $13.8 million of the $50 million authorized by the Board of Directors. Also during the quarter, $115.6 million of the outstanding notes were converted into 13.5 million shares of our common stock. The sale of the specialty pharmaceutical business constituted a fundamental change under the indenture for the notes which triggered a change in the conversion rate. After March 4, the conversion rate reverted back to its original and current rate of 104.7 shares per $1,000 principal amount.

In summary, Enzon reported net income of $199.8 million for the first quarter of 2010 as compared to $6.2 million for the first quarter of 2009. As we have stated earlier, this quarter was a real transition period as several new components that will be part of the company going forward. However, we also had some more unique items this quarter, such as the sale of specialty business and restructuring charges. We will continue to transition the company throughout 2010.

With that, I will turn the call now over to Dr. Ivan Horak, our President of Research and Development to give you an update on our pipeline program. Ivan?

Ivan Horak

Thank you, Craig. I'm pleased to have the opportunity to update you on our pipeline programs which include some of the most innovative and cutting-edge technology currently being tested. First I would like to provide an update on our PEG-SN38 compound used as the cytotoxic agent enhanced by our PEGylation technology.

We continue to evaluate this component in two Phase II studies and one Phase I study. The first Phase II study conducted in patients with advanced colorectal cancer whose disease has progressed on two standard therapies that contain Camptosar and Oxaliplatin.

This study is designed to evaluate two groups of patients; one arm on the study for those patients who can’t face the K-RAS mutation, which has reported to occur in at least 40% of patients with colorectal cancer. The second group includes patients whose cancer has wild-type of K-RAS. Enrollment is ongoing and to date we have enrolled 121 patients and we look forward to providing meaningful results in near future.

We also have a Phase II study ongoing for patients with metastatic breast cancer who failed multiple trial therapies. Previously, irinotecan or Camptosar has been evaluated and shown to be active in patients with breast cancer with response rate of 15% to 20%. However, because of severe diarrhea that occurred in about 15% of patients the drug has not been widely used in this indication.

PEG-SN38 continues to be well tolerated in this breast cancer patient population. Since opening the study in January 2010, we have enrolled a total of 40 patients and our investigators continue to be very enthusiastic in evaluating this compound.

Lastly, you may recall that we opened a Phase I study evaluating PEG-SN38 in pediatric cancer patients earlier this year. This study is designed to find a recommended dosage and schedule in pediatric patients. The pediatric setting is one which irinotecan or Camptosar is widely used. However, neither is formally approved. We are treating [ph] for patients and we are now enrolling to our second quarter.

To date, we have not observed any dose limiting toxicities. We look forward to determine the recommended dose for pediatric setting and remain hopeful that this compound will demonstrate improved safety, convenience and efficacy profile to that of Camptosar.

Now let me turn to our messenger RNA antagonists program. We have licensed eight RNA antagonists based on the Locked Nucleic Acid platform. The LNA platform is a third-generation RNA targeting strategy, which is designed to have improved stability, affinity and high potency than earlier version of RNA targeting agents. These RNA antagonists are designed to target a specific elimination of key proteins that are not accessible to antibodies or are difficult to target the small molecule.

Our first RNA antagonist to enter the clinic target is HIF-1 alpha. We continue evaluating the HIF-1 alpha antagonist in Phase I study for solid tumors. The compound continues to be safe and well tolerated even at doses that are much high compared to other RNA targeting drugs that are continued to be evaluated in other clinical trials.

At present, we have completed dose escalation within the first trial and we are evaluating the schedule of administration. However, as we mentioned last quarter, we are now requiring patients to get a repeated tumor biopsy prior to treatment and after three doses. This requirement was added at confirm that we are hitting the HIF-1 alpha target results from the tumor biopsies that provide answers we require for determining the best possible development plan for this component.

Our second RNA antagonist in clinic, which targets survivin, also continues to enroll patients in a Phase I study. Enrollment is going well and we continue to treat patients. As you will recall, the study is designed to provide the recommended dose for both single agent as well as in combination with Taxotere. Similar to HIF-1 alpha protocol, we are also studying [ph] tumor biopsies to confirm this antagonist is actually now [ph] regulating the survivin target.

We also recently presented data from three of our early stage RNA antagonists. Data from our RNA antagonist target against androgen receptor demonstrates the growth inhibition for several prostate tumor models. The data also show that the compound is present in tumor and remain there for up to seven days. This data is encouraging as it confirms our weekly treatment in ongoing HIF-1 alpha and survivin clinical studies.

We also saw similar results of activity from our beta-catenin and Gli2 antagonists. We continue to be encouraged by the results from our preclinical program for each of these compounds, and all data were presented at AACR and can be found on our Web site.

In conclusion, we continue to be focused on advancing our exciting pipeline. The team is dedicated to discovering and developing compounds that we hope will improve the outcome of cancer treatment.

And now I will turn the call over to Ralph Del Campo, our Chief Operating Officer.

Ralph Del Campo

Thank you, Ivan. As you have heard today, this quarter marks a strategic change for Enzon, as a company who previously operated three segments, which included marketed products and a contract manufacturing business, we now are totally dedicated on developing our pipeline in an effective and efficient manner.

We appreciate the efforts of those Enzon employees that help create the value of the specialty pharmaceutical business and the value of these assets represents to sigma-tau. We look forward as an entire employee team to deliver and build value on the remaining critical assets that comprise Enzon today.

As with any transformation of this magnitude it is challenging to reposition the company and its employees to a new set of goals and objectives. However, the entire Enzon team remains dedicated and committed in attaining these goals and objectives and in developing new therapies to improve the outcomes of patients with cancer.

And now, we will like to open the call up for questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) All right. It looks like our first question in queue comes from Bert Hazlett with BMO Capital Markets. Please go ahead. Pardon me, Bert, your line is open. Please check the mute button on your phone.

Jim Tumbering – BMO Capital Markets

Hi, it’s Jim Tumbering here for Bert. Thanks for taking the question. Just hoping you could comment maybe on priorities of use of cash, whether it’s debt repurchases or share buybacks versus internal R&D spending or maybe product licensing. Thanks.

Alex Denner

I think really what we are looking to do in terms of this is study this whole situation and figure out the best way to maximize value here. So I don’t want to list specific priorities. That said, I think kind of the more immediate ways to return value to shareholders are probably kind of higher up on our list. We are very much committed to the research programs that are ongoing here. And there is a certain plan [ph] that will be associated with them which we really kind of trying to manage to be as low as possible.

Jim Tumbering – BMO Capital Markets

Thanks. That’s very helpful. And then also I just wanted to touch (inaudible) in the pipeline really quick. Thank you for the nice rundown there. I don’t want to put any pressure on you. But when might we see some of the earlier LNA assets move into the clinic?

Alex Denner

Ivan?

Ivan Horak

Yes, thank you. Thanks for the question. So we are targeting to bring one LNA – new LNA from research to clinic within this year. And then obviously over next few years time, we plan to bring additional targets based on the preclinical data.

Jim Tumbering – BMO Capital Markets

Great. Thanks.

Operator

Thank you. Our next question in queue comes from Caroline Corner with William Smith & Co. Your line is open.

Caroline Corner – William Smith & Co.

Hi, thanks for taking my call. I was wondering with regard to the colorectal program, are we looking – are we still expecting to see some preliminary data by year end this year?

Alex Denner

Yes, I don’t know that we have – Ivan, why don’t you handle that. But I don’t know if there is any specific expectation. But Ivan, go ahead and give her some color on that.

Ivan Horak

I fully agree with you because the study is a three arm study pretty much, so we have to complete the study and obviously we will report the data at the major oncology meeting. So your answer is absolutely correct.

Caroline Corner – William Smith & Co.

Okay. Great, thanks for that. And then any update on the search for a new CEO? Any expected timeline there or any leading candidates, etcetera?

Alex Denner

I don’t think we have too much to say about that right now. We will kind of continue to update people as we move forward.

Caroline Corner – William Smith & Co.

Okay. Thanks for taking my questions.

Operator

Thank you. Our next question is queue comes from Jeffrey Cohen with C.K. Cooper. Your line is now open.

Jeffrey Cohen – C.K. Cooper & Company

Hi, thank you for taking my call. Just a couple of brief questions for you as far; first, could you break down some of the restructuring charge? You had talked about severance of $700,000, but I also see $3.8 million for severance payment.

Alex Denner

Craig?

Craig Tooman

Yes, so theit is almost all severance, and in essence $3.8 million is associated with former CEO, the remainder $6 million is over approximately 64 employees. The $700,000 that you referred to I believe is the reference to 2009 where we also had restructuring program.

Jeffrey Cohen – C.K. Cooper & Company

Perfect, thank you. Could you maybe provide a little more guidance into R&D expenses for the balance of the year? I see for this quarter – so essentially they were $11.52 million. How do you think that looks from here for the next few quarters?

Alex Denner

Yes, I don’t think we can provide guidance, but rest assured we are not looking to sort of – we are looking to spend as little money as possible to move these programs forward in the best way.

Jeffrey Cohen – C.K. Cooper & Company

Okay.

Craig Tooman

The only thing I would add is that we did have a $1 million milestone this quarter as a reminder in the $11.5 million.

Jeffrey Cohen – C.K. Cooper & Company

Perfect, thank you.

Operator

Thank you. Our next question in queue comes from Ted Wachtell with Millennium Partners. Your line is open.

Ted Wachtell – Millennium Partners

Hi, with regards to the PEG royalty stream, can you come up with a little more detail as to where you stand on that? And how far along you are? And can we realistically see something happening with that royalty stream? There is one enormously obvious buyer of that royalty stream, I guess, just a little more color on that.

Alex Denner

Yes, it’s a good question. It’s going to be hard to provide that – too much more color unfortunately. But look, what we want to do is we want to provide the best after tax – and after tax is important here – value to Enzon shareholders present value. So we are out there as we’ve announced evaluating potentially selling the royalty stream and we would compare that to sort of what we get on an after-tax basis and the present value of the payments we think we are going to get. And based on that we will put a future out where we are when we complete the process, which we haven’t done yet.

Ted Wachtell – Millennium Partners

So, how far along are in the process? It could sort of happen or not happen in the next couple of months, six months?

Alex Denner

You can never say when something is going to happen or not. We are relatively far along in the process. But exactly what we are going to do is not clear at this point.

Ted Wachtell – Millennium Partners

Do you really see the royalty stream is being relatively stable? I mean, it’s dropped off a little bit. How do you look at this stream? Do you view it as an asset that’s going to – royalty stream that’s going to show up or it will be fairly consistent? If you keep it, how should we be looking at that royalty stream?

Alex Denner

Okay, it’s very – I don’t think we really can be in a position of providing guidance for what we think royalties are going be –. That’s said, there are number of scenarios, one is the trajectory line now continuing and now there is – as some new therapies enter the market, there is some people think there is some warehousing of patients and the treatment penetration rates for treatment of hepatitis C will increase, which would potentially cause more interference to the use as well. So without giving guidance I think, there certainly is an upside scenario here.

Ted Wachtell – Millennium Partners

All right. Okay. Thank you.

Operator

Thank you, sir. Our next question in queue is from Caroline Corner with William Smith & Co. Please go ahead with your question.

Caroline Corner – William Smith & Co.

Hi, thanks again for taking my call. A follow-up question. Has all of the downsizing related to the restructuring already occurred or should we expect to see some ongoing cuts in the number of personnel going forward?

Alex Denner

Ralph, do you want to take that?

Ralph Del Campo

I think that certainly just about all of the restructuring costs and the restructuring have been completed. And in fact we are consolidating all of our R&D activities in our Piscataway location and that’s going very well.

Caroline Corner – William Smith & Co.

And with the consolidation then should we see a reduction in the number of personnel in R&D, or is that already taken care of?

Ralph Del Campo

Not necessarily, you continue to see a reduction in G&A as we continue to restructure the company.

Caroline Corner – William Smith & Co.

Okay. Thank you very much.

Operator

Thank you. Our next question in queue comes from Richard Mansouri with DellaCamera Capital. Please go ahead with your question.

Richard Mansouri – DellaCamera Capital

Hi, thank you. One question for Craig Tooman and then two questions for Dr. Alex Denner and Dr. Richard Mulligan. Craig Tooman, it looks like there was $9.8 million in G&A expense in the quarter and of this $2.4 million seems to be non-recurring incremental expenses. But that still makes adjusted G&A of about $7.4 million for the quarter, which is close to $30 million a year if you annualize this. So I guess Craig, can you explain why G&A is so high for what’s basically an R&D organization and how much do you think you can reduce that run rate? That’s my question from Craig Tooman. I still have two more.

Craig Tooman

Thank you. In essence we were operating, as you know, still with specialty pharma before that transaction was finalized through January, and we continued to employ many of the individuals for a short period of time, both G&A and in other places to assist sigma-tau in that transition. So you really haven’t seen the full benefit of any change materially in Q1. What we should see as we move forward is a pretty steady I think improvement each quarter for this period in 2010.

Richard Mansouri – DellaCamera Capital

Great. My first question for Alex Denner – and by the way thank you Dr. Alex Denner as Chairmen, for your efforts on behalf of the shareholders to improve the governance posture of this company. My question relates to the language in the amended 10-K that was filed, I believe, on April 15. On page 12, I think, it is it lists some certain corporate goals for 2010, cash incentive awards and one of the goals which someone else had asked about with evaluation and possible sale of the PEGINTRON royalties.

However, we know that Enzon’s royalty business also includes royalties from Cimzia as well as potential royalties from Hematide, it it’s approved. And I guess, even though Cimzia’s current revenues might be low right now, UCB the company that markets Cimzia has made some fairly aggressive comments about the potential peak revenue for Cimzia. So I guess my question, even if Enzon only gets a small fraction of the revenue associated with Cimzia, it could still translate into significant amount of value for Enzon in the context of Enzon’s current market value. So would you now entertain a sale possibly or some sort of monetization of the Cimzia royalty stream and/or the potential Hematide royalty stream in addition to anything that you are looking at on the PEGINTRON? That’s my first question.

Alex Denner

Thank you, Rich, and thank you for the kind comments and thank you for all the work you’ve done on behalf of shareholders as well.

Richard Mansouri – DellaCamera Capital

Thank you.

Alex Denner

I assume the – we would agree that the potential is high there, and as always, we would be looking to maximize value here. So however that happens, that happens. We can't probably get more into it than that but we do see the value and we would want to see it realized over time.

Richard Mansouri – DellaCamera Capital

Great. And my last question for you and/or Dr. Mulligan relates to the company’s LNA platform, which Enzon licensed from Santaris. Now based on our calculations it looks like the company has spent somewhere in the vicinity of $100 million on this LNA platform over the years if count the company’s milestone payment and the R&D expenditures over the years. And in the first quarter of 2010 alone, the company spent another, what was it, $6.4 million on the platform. So can we assume from this level of spending that you and others on the Board continue to believe that the LNA platform has value? And if so, what specifically do you see in the platform that gives you conviction as to the value there? And

And I guess a peripheral question is does the fact that Santaris has entered into some very large deals with Glaxo, with Wyeth, with Shire for that LNA technology, does that enter into your equation in terms of the increased or lack of increased confidence that you had in that platform, can you just speak to that?

Alex Denner

Richard, you want to go first?

Richard Mulligan

Yes. Hi, Richard.

Richard Mansouri – DellaCamera Capital

Hi.

Richard Mulligan

Yes. We believe in the technology but as most scientists in this field – the issue is the delivery efficiency. So I guess we are excited relative to the other approaches that are out there because it really does seem like there is an increased potency. Now whether there is an increased delivery potential, we will have to see. But the potency makes us think that at concentrations that we and others could add in patients that we’re much more likely to see something.

And what we’ve attempted to do over the last six months or so is look very carefully at how we are doing our clinical activities and whether or not we can get the most direct scientific evidence for activity in the tumor tissue. I think that while you are right that other deals happened, and it's a very popular area, everyone, the big pharma in particular is very aware of this delivery issue. So strategically what we are attempting, it’s we are trying to develop as rapidly and in fact as cheaply as possible clinical trials we’ll be able to see evidence that we'll raise the interest of people.

And so I am certainly scientifically of the notion that that is a single most important thing that we need to do that is the pre-clinical work we’ve done looks very good, but scientifically you really want to have molecular evidence that you are getting into the relevant tissue and you are knocking down the relevant target.

Now for cancer, if we can do this, this will be spectacular because as you know there are many pathways that are not easy druggable and by using this approach you will get those pathways. So I guess I would say it’s real cutting-edge research. There is risk to it, but in fact we are trying to focus very directly on the molecular kinds of tests that will raise the interest. And I think if we can get the answer over those tests, I think we are going to be able to get a lot of interest.

Richard Mansouri – DellaCamera Capital

Well, that’s great. I appreciate it. Thank you everyone.

Alex Denner

Thank you.

Operator

Thank you, sir. Our next question in queue comes from Brad Gold [ph] with Capital AU Consultants [ph]. Please go ahead with your question.

Brad Gold – Capital AU Consultants

Hi, Alex, how are you?

Alex Denner

Hi, how are you doing Brad?

Brad Gold – Capital AU Consultants

I am all right. I just wanted to ask a question which seems to be the 1,000 pound elephant in the corner. As you mentioned earlier, you are looking for your best after-tax return for shareholders and the fairly unusual situation given where the stock is trading vis-a-vis the cash that we have vis-a-vis the royalty stream, really with no value whatsoever to the R&D pipeline, which as we hear every quarter is very exciting.

The value of the assets is well in excess of our stock price and we bought back precious little of the stock. Can you just explain to me why we are not being more aggressive in repurchasing stock given what seems to be pretty big disconnect between the price of the stock and the value of the assets, giving zero value to the researchers we hear is very exciting today.

Alex Denner

Okay, sure. It’s difficult to comment on exactly the level of repurchases we are doing and how that will change over time. But we believe we are doing – we are doing it in a very thoughtful way. Without sort of confirming what you said in terms of the valuation, I think we are similarly optimistic about the potential for the company. So I don’t disagree with kind of the intention of your question. And I would just kind of say that maybe we are going to get to the same place I think and we are just hoping can do it in a way that gets the best outcome.

Brad Gold – Capital AU Consultants

Yes, I certainly welcome that –

Alex Denner

It is also specifically, as you know there are kind of rules around certain percentage – under Safe Harbor there is a certain percentage of daily volume you can buy and that type of stuff as well.

Brad Gold – Capital AU Consultants

Well, I'm very familiar with that and I'm certainly not suggesting that you are not going about it in a thoughtful manner because "thoughtful" is your middle name. But the question is that we have $500 million of cash and whatever we bought back it’s – on a dollar basis, it’s pretty insignificant, and I appreciate that you are thinking about it. But as I said, it seems to be a disconnect that’s going on for way too long, and I just hope that you come to the decision that when you can buy $1 for $0.80 leaving out a whole value for an R&D platform, which is questionable. It’s seems like something we should do more aggressively. So I appreciate you taking the question.

Alex Denner

Thank you.

Operator

Thank you. And at this time, I am showing no further questions in the queue. I’d like to turn the program back over to Craig Tooman for any closing remarks.

Craig Tooman

Thank you very much for joining us today, particularly late in the day. It’s been a very good quarter for Enzon. We appreciate your interest in us very much. We continue to transform the company to be more focused on the pipeline and thank you also for the Board members on joining us today. Thank you again and I hope to speak to you all soon.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect.

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Source: Enzon Pharmaceuticals, Inc. Q1 2010 Earnings Call Transcript
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