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Enzon Pharmaceuticals, Inc. (NASDAQ:ENZN) is a biopharmaceutical company dedicated to the discovery and development of medicines for patients with cancer and other life-threatening conditions. The Company’s drug development program utilizes several technologies, including its Customized Linker Technology and the Locked Nucleic Acid (LNA) technology.

It has three compounds in human clinical development: PEG-SN38, the HIF-1 alpha antagonist and the Survivin antagonist. PEGylation has been used on various pharmaceutical compounds (protein, peptides and antibody/antibody fragments) to improve their performance and deliverability. Through the customized attachment of polyethylene glycol (PEG) to a pharmaceutical compound using a spectrum of stable and releasable linkers, its Customized Linker Technology has the potential to overcome the pharmacologic limitations for a universe of molecules and generate compounds. On January 29, 2010, it completed the sale of its specialty pharmaceutical busines

Does ENZN make for an intelligent investment or intelligent speculation today?

Starting with a base estimate of annual Free Cash Flow at a value of approximately $48,000,000 and the number of shares outstanding at 58,770,000 shares, we used an assumed FCF annual growth of 7 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here.

The resulting estimated intrinsic value per share (discounted back to the present) is approximately $12.77.

  • Market Price = $10.75
  • Intrinsic Value = $12.77 (estimated)
  • Debt/Equity ratio = .37
  • Price To Value (P/V) ratio = .84 and the estimated bargain = 16. percent.

Before we make a purchase, we must decide ( filter #1 ) if ENZN is a high quality business with good economics. Does ENZN have ( filter #2 ) enduring competitive advantages, and does ENZN have ( filter #3 ) honest and able management.

  • The current price/earnings ratio = 65.4
  • It 's current return on capital = 3.8-1
  • Using a debt to equity ratio of .37, ENZN shows a 5-year average return on equity = NA/

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding.

Growth benefits investors only when the business in point can invest at incremental returns that are enticing; thus only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Does ENZN make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today?

Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised. In terms of Opportunity Cost, is ENZN the best place to invest our money today?

TIME FORWARD PROJECTION:

How will ENZN compete going forward? Keep in mind that a financial report like this is a reflection of the past and present. It may be used to project a future, but it may not account for factors yet unseen. Therefore, pay attention to competitive and market factors that may affect changes in profitability.

In summary, using a debt to equity ratio of .37, ENZN shows a 5-year average return on equity = NA/ . Based on a holding and compounding period of 10 years, and a purchase price bargain of 16. percent, and a relative FCF growth of 7 percent, then the estimated effective annual yield on this investment may be greater than 8.8 %.

Going forward, are there any tranformational catalysts or condition indicators imaginable on the horizon?

As always, I appreciate hearing your views.

Disclosure: no positions

Source: Enzon Pharmaceuticals: Value Investment or Simply Speculation?