Icahn Steals The Future of Enzon Pharmaceuticals

| About: Enzon Pharmaceuticals, (ENZN)

Enzon Pharmaceuticals (NASDAQ:ENZN), on the reported urging of uber-investor Carl Icahn, will spin off a NewCo along with the majority of the company’s core technology (PEGylation), their entire published preclinical pipeline (i.e.; their RNA antagonist oncology portfolio) and $150m of funding from Enzon. Not a bad way to start a company, right?

Maybe I’m way off here but it seems to me in analyzing this deal that the NewCo gets all the goodies while Enzon is left with a manufacturing plant and a stable of marginal drugs (zero out of four therapies have over $50m a year in revenue). Now, I don’t mean to imply that I think Enzon is a bad company - hell, they’ve managed to make more profit this quarter than any pharma company I’ve ever worked for - I’m just saying they are selling their future based on the advice of a man notorious for breaking up companies and wringing every last dime out of a shakeup. Just listen to the PR speak from their CEO and tell me if it makes strategic sense:

“By separating these unique businesses into two focused companies, the opportunities for both the specialty pharmaceutical business and the biotechnology business could be substantially enhanced and greater value could be created than under the current structure,” said Jeffrey H. Buchalter, Chairman, President and CEO. “Operating separately will allow each company to benefit from greater strategic and managerial focus and appeal to their own unique shareholders. The separation will enable the two businesses to compete more effectively in their respective markets and optimize their business goals, research initiatives and capital requirements. We look forward to creating this opportunity for the shareholders,” said Mr. Buchalter.

So… 1-x= more than 2, due to focus and appeal from unique shareholders? Interesting. I guess it would be wrong to beg for a quick exit strategy via big pharma acquisition for NewCo in the initial press release. But it doesn’t stop there, the bullshit continues:

“The specialty pharmaceutical business will continue its long-standing track record in providing life saving therapies for patients. The business has strong fundamentals, including stable revenue, cash flow, and strong assets,” said Mr. Buchalter. “Upon completion of the spin-off, Enzon will have the resources to better focus its strategy and compete more effectively in the specialty pharmaceutical market.”

Yes, without all that pesky preclinical discovery and development going on, the company can focus on its stable revenue and cash flow until the patents run out and they have to begin thinking about the future!

I don’t think I’m the only one with this opinion either. Even while releasing earnings for the quarter that showed a 20% increase in revenue over 1Q07 and netting the company a ~$2m profit, the stock was penalized ~8%. Is it a shock to learn I don’t think this is enough of a drop? I don’t generally think shareholders should reward the loss of the future earnings potential of the company and the give away the core company technology. But what do I know?


In other Enzon related news, I just found this press release about the pay of the CEO:

DellaCamera Capital Master Fund Ltd., a 5.8% stakeholder of Enzon Pharmaceuticals Inc. (ENZN), said Thursday that it’s troubled by the compensation granted Enzon Chairman and Chief Executive Jeffrey Buchalter and calls for the resignation of three directors.

DellaCamera sent a letter to Enzon’s board on Thursday, saying that it’s also reviewing its voting alternatives with respect to the three directors up for election at the company’s May 22 annual meeting of shareholders.

DellaCamera is calling for the resignation of Goran A. Ando, Rolf A. Classon and Victor P. Micati, who are the current members of Enzon’s compensation committee.

So I did a little research and it turns out, Jeff Buchalter made $773,558 base with $1,162,500 in bonuses for a total cash compensation of ~$2m. Add to that the just over $3.1m in equity granted to Jeff and he pulled in a total of ~$5.2m in compensation last year (almost 3X any other executive at the company). It’s good to be the king.