ENZN - Enzon Pharmaceuticals

[bskptkl]

That is discussed in the thread .. Potential Vicinium royalties and milestone payments.

SESN, in the June 30 10Q, adjusted contingent consideration upward by $43 million and said it was based on expected increased sales of Vicinium (and the 2% royalty that they owe Vicinium's former shareholders).

 

I have never seen this accounting and have no idea how to handicap SESN's methodology. But an increase of $43 million based on 2% would imply an increase of $16 million based on ENZN's .75% royalty. ENZN's premium to cash is more like $3-4 million.

 

Reality check: if one was to put a lot of trust in SESN's calculation's of contigent consideration ($95 million currently), wouldn't it be best to just go long SESN? $0.92 cent stock with $0.58 cents of cash at Sep 30.

 

Here is the excerpt from the SESN Q:

"The fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium® within the United States, Europe, Japan and other potential markets, discount rates ranging from 6.6% to 13.7% as of December 31, 2018 and 6.1% to 11.8% as of June 30, 2019. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement. During the quarter ended June 30, 2019, the Company reassessed the total addressable global market for NMIBC and determined that both the global market size and estimated potential Vicinium commercial net sales within the global NMIBC market were likely higher than the Company’s previous estimates. Specific drivers of the increased revenue estimates include the expectation that Vicinium could achieve peak market penetration earlier than previously estimated, and the expectation that Vicinium sales outside the United States could be two to three times the expected sales volumes in the United States.  As contingent consideration incorporates a royalty rate of 2% on all commercial net sales reported through December 2033, an increase in expected future net sales correlates to an increase in the fair value of the Company’s potential contingent consideration. Accordingly, the Company’s contingent consideration at June 30, 2019 was adjusted to reflect the Company’s updated view of the NMIBC market and Vicinium’s potential sales volumes in that market."

[spartansaver]

That is discussed in the thread .. Potential Vicinium royalties and milestone payments.

SESN, in the June 30 10Q, adjusted contingent consideration upward by $43 million and said it was based on expected increased sales of Vicinium (and the 2% royalty that they owe Vicinium's former shareholders).

 

I have never seen this accounting and have no idea how to handicap SESN's methodology. But an increase of $43 million based on 2% would imply an increase of $16 million based on ENZN's .75% royalty. ENZN's premium to cash is more like $3-4 million.

 

Reality check: if one was to put a lot of trust in SESN's calculation's of contigent consideration ($95 million currently), wouldn't it be best to just go long SESN? $0.92 cent stock with $0.58 cents of cash at Sep 30.

 

Here is the excerpt from the SESN Q:

"The fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium® within the United States, Europe, Japan and other potential markets, discount rates ranging from 6.6% to 13.7% as of December 31, 2018 and 6.1% to 11.8% as of June 30, 2019. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement. During the quarter ended June 30, 2019, the Company reassessed the total addressable global market for NMIBC and determined that both the global market size and estimated potential Vicinium commercial net sales within the global NMIBC market were likely higher than the Company’s previous estimates. Specific drivers of the increased revenue estimates include the expectation that Vicinium could achieve peak market penetration earlier than previously estimated, and the expectation that Vicinium sales outside the United States could be two to three times the expected sales volumes in the United States.  As contingent consideration incorporates a royalty rate of 2% on all commercial net sales reported through December 2033, an increase in expected future net sales correlates to an increase in the fair value of the Company’s potential contingent consideration. Accordingly, the Company’s contingent consideration at June 30, 2019 was adjusted to reflect the Company’s updated view of the NMIBC market and Vicinium’s potential sales volumes in that market."

 

I've only been following from afar lately, but I'm fairly certain that the 2% royalty is only part of the $43mn the contingent consideration. Meaning you can't take Enzon's 37.5% of the 2% royalty and multiply it to the $43mn. I'm pretty sure it's a much smaller number for Enzon. 

[writser]

I've only been following from afar lately, but I'm fairly certain that the 2% royalty is only part of the $43mn the contingent consideration. Meaning you can't take Enzon's 37.5% of the 2% royalty and multiply it to the $43mn. I'm pretty sure it's a much smaller number for Enzon.

 

Yes, this is correct afaik. Figuring out what milestone payments and royalty streams go where is a bit of a mess.

[bskptkl]

That is discussed in the thread .. Potential Vicinium royalties and milestone payments.

SESN, in the June 30 10Q, adjusted contingent consideration upward by $43 million and said it was based on expected increased sales of Vicinium (and the 2% royalty that they owe Vicinium's former shareholders).

 

I have never seen this accounting and have no idea how to handicap SESN's methodology. But an increase of $43 million based on 2% would imply an increase of $16 million based on ENZN's .75% royalty. ENZN's premium to cash is more like $3-4 million.

 

Reality check: if one was to put a lot of trust in SESN's calculation's of contigent consideration ($95 million currently), wouldn't it be best to just go long SESN? $0.92 cent stock with $0.58 cents of cash at Sep 30.

 

Here is the excerpt from the SESN Q:

"The fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium® within the United States, Europe, Japan and other potential markets, discount rates ranging from 6.6% to 13.7% as of December 31, 2018 and 6.1% to 11.8% as of June 30, 2019. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement. During the quarter ended June 30, 2019, the Company reassessed the total addressable global market for NMIBC and determined that both the global market size and estimated potential Vicinium commercial net sales within the global NMIBC market were likely higher than the Company’s previous estimates. Specific drivers of the increased revenue estimates include the expectation that Vicinium could achieve peak market penetration earlier than previously estimated, and the expectation that Vicinium sales outside the United States could be two to three times the expected sales volumes in the United States.  As contingent consideration incorporates a royalty rate of 2% on all commercial net sales reported through December 2033, an increase in expected future net sales correlates to an increase in the fair value of the Company’s potential contingent consideration. Accordingly, the Company’s contingent consideration at June 30, 2019 was adjusted to reflect the Company’s updated view of the NMIBC market and Vicinium’s potential sales volumes in that market."

 

I've only been following from afar lately, but I'm fairly certain that the 2% royalty is only part of the $43mn the contingent consideration. Meaning you can't take Enzon's 37.5% of the 2% royalty and multiply it to the $43mn. I'm pretty sure it's a much smaller number for Enzon.

 

They explained the $43 million increase in terms of increased sales of Vicinium. I presume the $20 million or so of milestone payments was in the initial $40 odd million of contingent consideration. And who knows if other drugs candidates were given a value.

 

One can't take SESN's word for it though. If we did, we should all be buying SESN.

[spartansaver]

That is discussed in the thread .. Potential Vicinium royalties and milestone payments.

SESN, in the June 30 10Q, adjusted contingent consideration upward by $43 million and said it was based on expected increased sales of Vicinium (and the 2% royalty that they owe Vicinium's former shareholders).

 

I have never seen this accounting and have no idea how to handicap SESN's methodology. But an increase of $43 million based on 2% would imply an increase of $16 million based on ENZN's .75% royalty. ENZN's premium to cash is more like $3-4 million.

 

Reality check: if one was to put a lot of trust in SESN's calculation's of contigent consideration ($95 million currently), wouldn't it be best to just go long SESN? $0.92 cent stock with $0.58 cents of cash at Sep 30.

 

Here is the excerpt from the SESN Q:

"The fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium® within the United States, Europe, Japan and other potential markets, discount rates ranging from 6.6% to 13.7% as of December 31, 2018 and 6.1% to 11.8% as of June 30, 2019. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement. During the quarter ended June 30, 2019, the Company reassessed the total addressable global market for NMIBC and determined that both the global market size and estimated potential Vicinium commercial net sales within the global NMIBC market were likely higher than the Company’s previous estimates. Specific drivers of the increased revenue estimates include the expectation that Vicinium could achieve peak market penetration earlier than previously estimated, and the expectation that Vicinium sales outside the United States could be two to three times the expected sales volumes in the United States.  As contingent consideration incorporates a royalty rate of 2% on all commercial net sales reported through December 2033, an increase in expected future net sales correlates to an increase in the fair value of the Company’s potential contingent consideration. Accordingly, the Company’s contingent consideration at June 30, 2019 was adjusted to reflect the Company’s updated view of the NMIBC market and Vicinium’s potential sales volumes in that market."

 

I've only been following from afar lately, but I'm fairly certain that the 2% royalty is only part of the $43mn the contingent consideration. Meaning you can't take Enzon's 37.5% of the 2% royalty and multiply it to the $43mn. I'm pretty sure it's a much smaller number for Enzon.

 

They explained the $43 million increase in terms of increased sales of Vicinium. I presume the $20 million or so of milestone payments was in the initial $40 odd million of contingent consideration. And who knows if other drugs candidates were given a value.

 

One can't take SESN's word for it though. If we did, we should all be buying SESN.

 

There are other royalty milestones (still related to Vicinium) due to other companies unrelated to the 2% royalty and milestones. If you go through SESN's annual I believe that they give some disclosure about it (it's been a while, but at the time of researching I was nearly certain).

[writser]

Sesen just sold their Vicineum marketing rights for China for $12m upfront, $23m in milestone payments and a 12% royalty stream ( link ). At least one other data point that shows that some other parties see value in Vicineum.

 

If I understand the licensing agreement correctly ( link ) Micromet is eligible to receive up to E4.3m in milestone payments and 2.5% - 3.5% royalty stream.

 

Currently, the liability on the Sesen balance sheet is ~85m, but that includes the milestones and earn-out payments payable to the selling shareholders of Viventia as well as license agreements with the university of Zurich and XOMA Ireland. And Micromet only has to pay Enzon half of what it receives under the licensing agreement. So, what is this piece of the puzzle worth? Hard to say exactly, but probably a few million at least. Add to that the significant NOL's, the involvement of a couple of activists and I can see why Enzon could be attractive at the current price.

 

That said, I don't own it. Cash burn is significant and I think other people are more enthousiastic about the royalty stream potential than I am. Also to repeat, if Vicineum is such a great product wouldn't Sesen be the better buy?

[bskptkl]

Sesen just sold their Vicineum marketing rights for China for $12m upfront, $23m in milestone payments and a 12% royalty stream ( link ). At least one other data point that shows that some other parties see value in Vicineum.

 

If I understand the licensing agreement correctly ( link ) Micromet is eligible to receive up to E4.3m in milestone payments and 2.5% - 3.5% royalty stream.

 

Currently, the liability on the Sesen balance sheet is ~85m, but that includes the milestones and earn-out payments payable to the selling shareholders of Viventia as well as license agreements with the university of Zurich and XOMA Ireland. And Micromet only has to pay Enzon half of what it receives under the licensing agreement. So, what is this piece of the puzzle worth? Hard to say exactly, but probably a few million at least. Add to that the significant NOL's, the involvement of a couple of activists and I can see why Enzon could be attractive at the current price.

 

That said, I don't own it. Cash burn is significant and I think other people are more enthousiastic about the royalty stream potential than I am. Also to repeat, if Vicineum is such a great product wouldn't Sesen be the better buy?

Nice summary. Thanks.

Agree the cash burn is too high - that's why I'm voting my shares for the new slate.

Though, if it goes much higher, I'll have to let some go...

[spartansaver]

Does anyone have a decent understanding of this rights offering?

 

ENZN is issuing rights that allow holders to purchase shares in combination with preferred's. The preferred will not have a market and yields 3%. Icahn Capital will oversubscribe, but then sell all of its regular shares post issuance.

 

Why would Icahn only want a preferred that hardly yields anything? What am I missing?

[bskptkl]

Anybody still own this? The price action suggests SPAC mania has struck.

[samwise]

Does anyone have a decent understanding of this rights offering?

 

ENZN is issuing rights that allow holders to purchase shares in combination with preferred's. The preferred will not have a market and yields 3%. Icahn Capital will oversubscribe, but then sell all of its regular shares post issuance.

 

Why would Icahn only want a preferred that hardly yields anything? What am I missing?

 

Spartan, that is an interesting pref. Designed to repel it seems like, with no trading or quote, or convertibility etc. Does anyone have it now? How does it show up in brokerages like IBKR , TD etc?

 

I just skimmed through, but it seems interesting.

Icahn can ask for his money back , with interest in nov 2022. Isn’t this the sort of deal KKR had with WMIH? When they ask for money back, the company is screwed, it has no earnings to pay interest+ principle. Then Icahn can negotiate a sweet deal for himself, with higher ownership. Haven’t looked in detail, but you should also check the time of ownership changes to see when he can increase his ownership without affecting NOLs. He also has an out if the NOLs are lost.

 

However the new preferred (series C) doesn’t have voting rights. So Icahn has 48.6% common shares and if he sells them, how isn’t this a change of control?

 

Is he just pissed at Couchman and doing this to hurt him?

 

More questions than answers unfortunately. And even if we solve this the opportunity to get the pref is gone.

[bskptkl]

That was my conclusion. Icahn would have lost the board.

 

But the puzzler is - who the heck is buying and why? Shareholders will be beholden to Icahn. I'd say that's a negative, but what do I know? I just keep selling...