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Volatile Enzon Still Attractive With More Dividends Expected

Summary

Enzon receives royalty revenue from its products, which it has licensed to other healthcare partners. Pegintron, licensed to Merck (NYSE: MRK), contributed 94 percent of royalty revenue in 2013.

In September 2013, Enzon subleased its premises to Axcellerate Pharma LLC.

In the recent Q1 2014 results released on May 9 2014, Enzon’s revenue was $8.9 million. The operating profit was $8.4 million as there was no R&D or sales expenses.

Investors like Icahn Associates, Blackrock (NYSE: BLK) and Vanguard Group still have about 28 percent holding in the company, finding it attractive in terms of dividend yield.

Enzon Pharmaceutical (NASDAQ: ENZN) is a Piscataway, New Jersey based biopharmaceutical company specializing in the research and development of innovative therapeutics for cancer like customized PEGylation linker technology and mRNA-targeting agents using locked nucleic acid technology.

The company's current product portfolio includes Pegintron, Sylatron, Macugen, CIMZIA, OMONTYS, Oncaspar and Adagen. Enzon receives royalty revenue from its products, which it has licensed to other healthcare partners. Pegintron, licensed to Merck (NYSE: MRK), contributed 94 percent of royalty revenue in 2013.

Enzon Pharma had announced in December 2012 that it was winding up its research and development activity, stopping ongoing clinical trials and looking to dispose its assets periodically. In April 2013, Enzon sold its PEGylation platform to Belrose Pharma Inc.

In September 2013, Enzon subleased its premises to Axcellerate Pharma LLC. The company had announced that all royalty revenues would be distributed as dividends and special dividends of $4 per share (December 2012), $3.2 per share (June 2013) and $0.45 per share (December 2013). The total figure paid to date is $3.3 million and more is expected for the next few years.

As expected, the stock price has plunged significantly after each dividend announcement. The stock traded at about $7 in December 2012 when the company announced the winding up plan, but is now trading below $1. It has since received a delisting notice from NASDAQ if the stock price fails to breach the $1 mark for a given number of quarters.

In the recent Q1 2014 results released on May 9 2014, Enzon's revenue was $8.9 million. The operating profit was $8.4 million as there was no research and development expense and sales expenses. Net profit was $8.5 million in Q1 2014 as against $2.4 million in Q1 2013 due to proceeds from asset sales. Cash on hand as of March 2014 was $14.8 million. It is very likely that nearly all of this amount will be distributed as dividends during 2014.

Investors holding on to Enzon stock can expect dividend flow for another 2-3 years as the company continues with its exit strategy, cutting costs and channeling the revenues to shareholders in the form of dividends.

Trading in the stock is expected to be volatile considering a number of uncertainties hanging around the company. Institutions like Baupost Group LLC (managed by Seth Klarman) exited an 18 percent stake in Enzon in April 2014.

However, other big investors like Icahn Associates, Blackrock (NYSE: BLK) and Vanguard Group still have about 28 percent holding in the company, finding it attractive in terms of dividend yield and estimation of attractive exit price in case of a buyout.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.