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By Shankar P.
Enzon’s value has climbed as it took steps to reduce debt, consolidate its manufacturing, fill its product pipeline and cut expenses, all while lifting revenue from product sales, royalty income and contract manufacturing to $197 million in 2008, from $186 million the year before.
But observers point to a series of boardroom developments as having even greater promise.
Three new directors joined the company’s board — two, Alexander Denner and Richard Mulligan, came on in January as representatives of Icahn Capital Management, which owns 6.22 percent of the company. The third director, Harold Levy, came on board in July, and represents Iridian Asset Management, the company’s biggest institutional shareholder, with an 18 percent stake.
Enzon’s investors have pinned big hopes on Icahn’s record of extracting hidden value in the companies in which it invests, said Michael Becker, CEO of Newtown, Pa.-based MD Becker Partners, a strategic advisory firm specializing in biotechnology.
“If history is an example, Enzon should do extremely well given the changes,” Becker said, mentioning Icahn’s role in selling New York-based ImClone Systems to Eli Lilly for $6.5 billion in October — ImClone’s stock rose 137 percent in the 26 months Denner and Mulligan were on its board, Becker said.
In July, Buchalter was replaced as chairman — a position he’d held since September 2004 — by Denner, who is now non-executive chairman. Buchalter remained Enzon’s CEO because he enjoyed the confidence of the Icahn firm, Becker said, and has an impressive industry record. His top accomplishment was revamping Ilex Oncology, of San Antonio, over three years as its CEO before selling it to Genzyme Corp. for $1.1 billion in December 2004, Becker said. In his 20-year plus career, Buchalter also has held senior titles at Pharmacia, Wyeth and Schering-Plough.
It was not easy getting Enzon to its current state, said Buchalter, who joined as its president and CEO about five years ago. “The company was in a mess. The pipeline was not doing well, and at one point was zero; sales were not doing well; and debt was greater than market capitalization.”
In the past few years, Enzon has cut its debt in half, to $200 million; issued $275 million of new debt, due in 2013 to stave off a near-term obligation; built an oncology pipeline of five drugs, including three in Phase I and one in Phase II; won marketing approvals for two products; cut cost of goods sold by nearly 10 percent; and, in late 2007, closed its South Plainfield plant, laying off about 60 of its more than 400 employees.
Buchalter said the company now has $180 million in cash, and unlike most other biotech companies looking for funding, Enzon “is set up not to rely on the capital markets.”
But Enzon’s plan to spend between $80 million and $90 million this year on R&D has drawn some criticism. DellaCamera Capital Management, a large institutional shareholder, thought that figure was much too high, and its representative questioned it in an earnings call. David Moskowitz, an analyst at Caris & Co., in Washington, D.C., who tracks the company, wrote in an Aug. 5 research report that “a sharp pencil may be taken to [Enzon’s] R&D budget this year and beyond.”
Buchalter said the company’s revenue flow justifies it. He also said a significant part of that budget goes toward expensive trials for drug candidates with strong promise.
“I have the cash and the income,” he said. “I would add to the pipeline if I found something promising.”
E-mail to shankar_p@njbiz.com
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